Council of Europe
	 — 
	Question

The Earl of Dundee: To ask Her Majesty's Government what plans they have to promote active citizenship in Europe during their current chairmanship of the Council of Europe.

Lord Howell of Guildford: My Lords, our chairmanship priorities were outlined in my Written Statement of 26 October 2011. They include, among other things, reform of the council's work on local and regional democracy, which should assist in strengthening the citizenship role in member states.

The Earl of Dundee: I thank my noble friend for that reply. Can he affirm that our chairmanship will seek measures to improve the co-ordination of local democracy, including among the Council of Europe's separate branches for local government, non-government organisations and the Parliamentary Assembly itself? Can he also assure us that our chairmanship will recognise and encourage experience of good practice such as city diplomacy, where different cities and centres already improve their local results by working together on similar issues and problems?

Lord Howell of Guildford: The answer to my noble friend is yes on both points. The Council of Europe can have a major role in facilitating exchanges of the sort he described, and one priority of our chairmanship is to streamline and make more efficient the Council of Europe's work in the field of democratic local governance. Also, there can be real gains for local communities where those responsible for local services and the governance of towns and cities can exchange good practice and share knowledge and experience with their counterparts in other states, and that, too, we intend to encourage in our chairmanship.

Lord Anderson of Swansea: My Lords, the European Union's Europe for Citizens programme concentrates mainly on town twinning, so we should avoid duplication in the Council of Europe, but the European Union programme also deals with communicating with citizens on the work being done by the European Union. Is not there a case during our presidency for informing the citizens of the wider Europe of the valuable work being done in many fields by the Council of Europe?

Lord Howell of Guildford: Yes, I am sure there is. The noble Lord is quite right: the Council of Europe covers about 800 million people, which is wider than the European Union. Of course there can be a constructive interchange and the work of each body can be promoted by the other to their mutual benefit.

Lord Phillips of Sudbury: My Lords, does my noble friend accept that the so-called democratic deficit is developing in this country and in wider Europe, perhaps to be greatly exacerbated by the eurozone crisis? Is he aware that 2013 is to be the EU year of citizens in action? In that regard, will he assure the House that citizenship education will remain part of the core curriculum, as it has been since 2002, given that there are now questions as to whether it might be taken out of the compulsory core curriculum?

Lord Howell of Guildford: I very much hope-it is a hope rather than an assurance-that all those involved in these great institutions will work in that way. This switches the commentary from the Council of Europe to the European Union, which of course is different, but we all look back to the Laeken declaration, which urged the European Union to bring itself closer to the citizenry, and the Council of Europe is of course on the same sort of track. This is an age of the empowerment of citizens and, as some people say, of empowerment of the street, sometimes with good results and sometimes with less good results. In all cases, empowerment of the citizen, responsibility of the citizen, education and bringing home the potential role of active citizenry remain absolutely vital.

Lord Tomlinson: Does the Minister agree that at a time when we need some good news to be given by the United Kingdom to Europe, it would be appropriate during our chairmanship to ratify the European convention on combating violence against women? I know that the consultation process finishes at the end of March, but if they really get their skates on that will be something for Dominic Grieve to announce when he comes to the Council of Europe in April.

Lord Howell of Guildford: I agree that this would be a good aim. A number of areas need further consideration before a final decision can be made on whether to sign the Council of Europe convention on preventing and combating violence against women and domestic violence. As part of this further consideration, which is on very real and important issues, I am advised that the Home Office launched a consultation in December, about two months ago, on whether to create a new offence of forced marriage. The consultation period will end on 30 March and we will then be able to make a definitive decision in line with the hopes of the noble Lord.

Lord Hamilton of Epsom: Following my noble friend's question about the crisis in the eurozone, what is the Government's policy towards unelected Governments of so-called experts in Greece and Italy?

Lord Howell of Guildford: I think that my noble friend will be the first to recognise that we have to leave the member states of Europe, and indeed the nations and democracies of the world, to decide how best to govern themselves. From time to time they call upon experts and technocrats to make up for the deficiencies of quarrelling democrats.

Baroness Farrington of Ribbleton: My Lords, I declare an interest as an honorary vice-president of the Standing Conference of Local and Regional Authorities of Europe. Will the Minister please give an assurance that during their presidency our Government will do everything to ensure that citizenship education includes the rights of Roma, Gypsy and Traveller populations within the countries of Europe? There is terrible discrimination in Council of Europe countries against these groups.

Lord Howell of Guildford: The noble Baroness is absolutely right that discrimination against Roma and concerns for the position of Roma are very important issues. As she knows, the secretary-general of the Council of Europe convened a high-level meeting way back in October of not last year but the year before. That was after the really chilling example of the French deportations of Roma and it produced the Strasbourg declaration on the treatment of the Roma. However, I fully agree with the noble Baroness that this issue should remain at the top of the agenda, and it is one that we should examine and promote very carefully and assiduously during our chairmanship.

Lord Richard: My Lords, if there really is a campaign called Citizens in Action, would the noble Lord urge whoever is responsible for it to look again at the title, which, to put it mildly, has a certain ambiguity about it?

Lord Howell of Guildford: I am sure that the noble Lord, with his learning and skill, could contribute to better titles and labelling for some of these programmes.

Health: Diabetes
	 — 
	Question

Lord Collins of Highbury: To ask Her Majesty's Government what plans they have to act on the National Diabetes Audit Mortality Analysis 2007-08, published by the NHS Information Centre, which estimated that up to 24,000 deaths from diabetes per year could be avoided by the condition being better managed.

Earl Howe: My Lords, we are working with the National Diabetes Information Service and National Health Service organisations to ensure that local services have the audit data for their own areas to show how they compare with others and where improvements can be made. NHS Diabetes has a suite of tools that can be used to help drive improvements and reduce avoidable deaths.

Lord Collins of Highbury: I thank the Minister for his response. Diabetes UK estimates that about 26 per cent of the 450,000 residents in nursing and care homes in England have diabetes. Care home residents are a highly vulnerable group of people and, without regular screening for diabetes, they are at an increased risk of complications such as heart disease, stroke, kidney failure, blindness and amputation. What are the Government doing to ensure that residents in care homes receive the appropriate screening that they need for diabetes?

Earl Howe: My Lords, much will depend on the way in which primary care engages with those in social care to ensure that the residents of care homes, who need diabetes care management, receive it properly. We very much want to see that joined-up commissioning arise from the reforms that we are currently in the process of debating in your Lordships' House. The noble Lord makes a very good point. We have many tools at our disposal. There is no shortage of guidelines in this area. Much will depend on the training of care home staff and a lot of work is going on under the aegis of the National Clinical Director for Diabetes in this area.

Lord Rennard: My Lords, does the Minister agree with the 15 checks or services promoted by Diabetes UK that every person with diabetes should receive or have access to? In particular, does he agree that they should have access to high-quality, structured education, firmly embedded in the NHS, based on a programme such as that for type 1 diabetics, promoting dose adjustment for normal eating?

Earl Howe: My Lords, the answer to my noble friend is yes. Those checks and services are firmly supported by NICE, by the National Service Framework and by the NICE quality standard. I also agree with him that structured education is fundamental if we are to ensure that patients can self-manage. A number of tools are available for that. He mentioned one for type 1 diabetics which has the acronym DAFNE-dose adjustment for normal eating-and for type 2 diabetics there is DESMOND-diabetes education and self-management for ongoing and newly diagnosed.

Baroness Finlay of Llandaff: Can the Minister please tell the House what levers the Government will have in the new NHS to ensure an increase in the use of insulin pumps for the control of diabetes in children, given that the pump appears at face value to be expensive, but as a long-term investment it is very cost-effective because it results in far better control of diabetes and a lower incidence of hypoglycaemic attacks, which is important for children at school?

Earl Howe: My Lords, we know that insulin pump therapy can make a huge difference to glycaemic control and the quality of life in some people. It is not appropriate for everyone, as the noble Baroness will, I am sure, recognise. We know that much more has to be done to improve the uptake of insulin pumps in line with NICE recommendations. The NHS operating framework for this year highlights the need to do more to make these devices available. The NHS Technology Adoption Centre has published guidance to support NHS organisations in the adoption of these devices and I know that the National Clinical Director for Diabetes, Dr Rowan Hillson, chairs a working group focusing on the uptake of insulin pumps.

The Earl of Courtown: Does my noble friend agree that one of the greatest problems for those suffering from diabetes-particularly type 2 diabetes-and for those looking after them, is that they are not actually taking up the education that is available so that they can learn how to live their lives to get a better result from their illness?

Earl Howe: I agree with my noble friend. We are firmly of the view that education is a major action area for primary care clinicians, and for those in secondary care too, if we are to avoid unplanned admissions to hospital, which are unpleasant for patients and very costly for the NHS.

Lord Brooke of Alverthorpe: Does the Minister agree-I am sure that he does-that the recommendation that there should be more comprehensive and effective preventive care is an important part of the report, and that it is important to highlight the link between obesity and this illness? Does he agree that it is now high time for the Government to introduce calorific labelling of alcohol products so that people know the number of calories they take in when they drink, and to stop citing the European Union as the reason why they are not doing it?

Earl Howe: The noble Lord is to be congratulated on bringing me back to the very important subject of the labelling of alcoholic drinks. I hope that the House will feel that he was a little unfair in blaming the Government for the line that they have taken on this. As the noble Lord knows, labelling is an area that is very largely a matter of EU competence. However, he is right that type 2 diabetes is closely linked to obesity and insufficient physical activity. We would like to see businesses use a more consistent front-of-pack nutrition labelling approach than has been achieved in the past, particularly with food.

Lord Harrison: Will the noble Earl recognise another acronym, the DAFNE programme, and give greater government support to rolling out such a programme, as illustrated by the noble Lord, Lord Rennard? Will be also reply to the Danish Government, who have made diabetes a priority under their presidency for the coming six months? What is being done with our Danish colleagues to promote a better understanding of diabetes and its treatment?

Earl Howe: The noble Lord is right to emphasise the role of DAFNE. The 2011-12 NHS operating framework signals the need to commission patient-structured education for people newly diagnosed with diabetes, and at appropriate points in their life as their condition progresses. I do not have a briefing on the dialogue with our Danish colleagues on their programme of action, but I will write to the noble Lord on that.

House of Lords: Scottish Referendum
	 — 
	Question

Lord Hunt of Kings Heath: To ask Her Majesty's Government what assessment they have made of the impact of the proposed referendum on Scottish independence on reform of the House of Lords.

Lord Strathclyde: My Lords, the Government can proceed only on the current constitutional framework. We will of course take all relevant factors into account when planning the timetable for reform.

Lord Hunt of Kings Heath: My Lords, I am enormously grateful to the noble Lord, Lord Strathclyde, for that illuminating response. Remarkably, it appears that Mr Clegg's Bill is to be the centrepiece of the Government's legislative programme for the next Session. However, this will be in advance of the outcome of the Scottish referendum which could-I am sure the noble Lord will agree-have profound constitutional significance for the United Kingdom. How will the Government take that into account? Furthermore, as Scotland is to have a referendum, why on earth are the British people not to be allowed one on Lords reform?

Lord Strathclyde: My Lords, there were a number of questions there. The noble Lord is right that it would have profound constitutional implications for the United Kingdom if there were to be a referendum result in Scotland in favour of breaking up the United Kingdom. However, as I said in my Answer, we can proceed only on the current constitutional framework. If there is a Scottish referendum, I for one-and, I am sure, the noble Lord for another-will campaign in favour of retaining the United Kingdom. The Government of course considered the case for a referendum on the future of the House of Lords. However, given that all three manifestos in the most recent election were remarkably similar on reform of the House, we feel that people's views have already been taken into account.

Lord Cormack: My Lords, the manifestos were rather different. However, does my noble friend agree that those of us who are concerned about the future of the United Kingdom must not take the people of Scotland for granted and must not appear to patronise them? To anticipate the results of the Scottish referendum would seem to do precisely that. Therefore, is there not the strongest possible case for getting the issue decided before we turn to House of Lords reform?

Lord Strathclyde: My Lords, of course we must neither patronise nor anticipate. On the other hand, normal work should not come to a halt because of a possible referendum. That is why we are carrying on with our stated proposal for reform of the second Chamber.

Lord Kakkar: My Lords, if the Scottish people were to determine that their constitutional destiny lay with the devo-max model, would it be appropriate for them to participate in elections for the Deputy Prime Minister's senate in 2015?

Lord Strathclyde: My Lords, a rather different question is raised by the noble Lord, and I am not sure that I know entirely what is meant by this phrase devo-max.

Noble Lords: Oh!

Lord Strathclyde: My Lords, I hear some moaning from the other side, but I expect that if we asked three of them what they thought devo-max meant we would get four different answers. It would probably be the same if we asked them their views on House of Lords reform. The point is that any different arrangement of the United Kingdom would of course have an impact on an elected House, in the same way as it would have an impact on the House of Commons.

Lord Foulkes of Cumnock: My Lords, I am not going to ask about devo-max. However, last week, in reply to a question from my noble friend Lord Campbell-Savours, the Leader of the House gave an unequivocal reply that no list of new Peers is being proposed. In the Daily Telegraph today he was quoted as saying that there is a new list, and indeed that the SNP has been asked to nominate. Would he care to clarify the position?

Lord Strathclyde: My Lords, I stand by my original answer. It is, of course, up to the Prime Minister to decide when and if he comes forward with a list. I am not aware that he has any current plans to do so. I certainly voiced a view that there is no reason why there should not be a Scottish nationalist in this House, but I do not believe that any has been proposed.

Lord Maclennan of Rogart: My Lords, would it not be wise to allow the United Kingdom to reach consensual decisions about the role, powers and composition of this House when the future political relationships of all the constituent nations of the country have been settled?

Lord Strathclyde: My Lords, I do not think there is any requirement for us to wait on a referendum on breaking up the United Kingdom, which may not take place until the end of this Parliament, before legislating on what a future second Chamber will look like. However, as I said in my earlier Answer-which I think is not out of keeping with what my noble friend has just said-if the relevant factors were to change, we would take them into account when planning the long-term timetable for reform.

Lord Cunningham of Felling: My Lords, would not the best way of improving Scottish influence on proposals for House of Lords reform be to abandon the current, deeply flawed draft Bill, and replace it with support for the excellent Bill tabled by the noble Lord, Lord Steel of Aikwood, which commands wide-ranging respect in this House?

Lord Strathclyde: My Lords, I am well aware of the respect with which it is held in this House. However, it does fly in the face of the three manifestos on which the Members of the House of Commons were elected only 18 months ago.

Baroness Symons of Vernham Dean: My Lords, is it not the case that because the people of this country had no chance to vote for any party except those that support Lords reform, they ought to be afforded such an opportunity?

Lord Strathclyde: My Lords, that is a good point: when all the parties are united, there is no room for much opposition. However, if a Bill is published after the gracious Speech, I am sure that there will be very effective debate within Parliament, because, as I have said before, very often the differences on House of Lords reform exist within the parties rather than between them.

Lord Brooke of Sutton Mandeville: My Lords-

Lord Low of Dalston: My Lords-

Noble Lords: Brooke!

Baroness Anelay of St Johns: My Lords, it sounds as though my noble friend Lord Brooke has the Floor just at the moment.

Lord Brooke of Sutton Mandeville: My Lords, to revert to an earlier answer, why does my noble friend think that the world is not going to come to an end if a Bill to abolish the House of Lords is introduced into your Lordships' House?

Lord Strathclyde: My Lords, I am always wary of my noble friend winning this sort of competition to speak in the House. I rather wish that I had taken the question from the noble Lord, Lord Low.

Northern Cyprus
	 — 
	Question

Lord Sharkey: To ask Her Majesty's Government, in the light of the United Nations Secretary-General's comments on the lack of progress of talks on the future of Cyprus, whether they will now consider recognising Northern Cyprus.

Lord Howell of Guildford: My Lords, the United Kingdom remains committed to supporting the UN-led process on Cyprus. Although only limited progress was achieved at the latest round of talks between the two leaders and the United Nations Secretary-General, the process has not ended. The UN Secretary-General has called for a decisive move to reach a final agreement, and will provide a report to the Security Council at the end of February.

Lord Sharkey: My Lords, the Minister may recall that, writing in the Times on 8 November 2010, Jack Straw said:
	"It is time for the UK Government to consider formally the partition of Cyprus if the talks fail".
	The talks he referred to did fail, as did the next and latest. In the same article, Jack Straw also said that,
	"the chances of a settlement would be greatly enhanced if the international community broke a taboo, and started publicly to recognise that if 'political equality' cannot be achieved within one state, then it could with two states-north and south".
	Does my noble friend the Minister agree with Jack Straw on this point?

Lord Howell of Guildford: No, I do not. Jack Straw is not a member of the current Government, of course, and his comments were made in a private capacity as an MP. The guarantor power, the UK, has undertaken by treaty to prohibit any activity aimed at promoting, directly or indirectly, either the union of Cyprus with any other state or the partition of the island; so I repeat-a pretty emphatic no.

Lord Maginnis of Drumglass: My Lords, I beg leave to take the opportunity to pay tribute to my late and dear friend, Rauf Denktas, whose courage and leadership frustrated EOKA-B's Akritas and Ifestos plans for ethnic cleansing. After 49 years' discrimination against Turkish Cypriots and 38 years of successive Greek Cypriot rejections of resolutions, including the 2004 Annan plan, is it not time for the United Kingdom to cease its systematic humiliation of Turkish Cypriots?

Lord Howell of Guildford: On the first point, our high commissioner sent a letter of condolence to the leader in the north of Cyprus and to Mr Denktas's family. I personally associate myself with those condolences, having had an opportunity to meet him in the past. I do not think that the other language used by the noble Lord is justified. "Humiliation" does not come into it. The aim, and it is a noble aim, is to see equality of treatment and the bizonal federal ambition for a peaceful Cyprus achieved, with all citizens on an equal footing. There is no question of humiliation being involved.

Lord Triesman: My Lords, I start by expressing our agreement with the position that the Government have expressed this afternoon. It reflects a long-term policy and desire to see equality of treatment. I agree strongly with all those propositions. Does the Minister agree that if any process was inaugurated towards recognising Northern Cyprus, it would flow in exactly the opposite direction to any prospect of achieving the objectives that he has set out?

Lord Howell of Guildford: I am just trying to fathom out that question. First, I thank the noble Lord for his agreement and support for what we are all trying to do. This matter rises well above political parties and differences. As I was reminded this morning, these negotiations have been going on for 43 years. It really is time that we encouraged, by every effort possible, a resolution of these differences for the island of Cyprus. The noble Lord says the pressures go in the opposite direction to everything that we are trying to achieve, but I am not sure they do. I think the pressures, throughout the world and certainly from the United Nations Secretary-General, are that there can be some reconciliation and resolution. The main issues involved are to how to share power; the question of property, which is very sensitive; citizenship; and elections. On all these, I think it is possible for there to be progress, although I have to admit that for the moment it has been very modest.

Baroness Knight of Collingtree: My Lords, I am chairman of the group for Northern Cyprus in this House and I recently led a delegation there at the invitation of that country. Since the Minister has mentioned the length of this dispute, will he also bear in mind that every one of those 43 years has meant pain and suffering? Even today, if a Turkish Northern Cyprus group should visit the south, even on a sporting occasion, it is set upon and viciously attacked. This situation goes on and on. Surely some really hard effort must be put towards ending it.

Lord Howell of Guildford: I fully agree with my noble friend. Of course, these are unacceptable conditions for any citizen. The whole aim of working for a comprehensive settlement must be to make all those kinds of treatments and suffering, and the anecdotes associated with them, a matter of the past.

Lord Harrison: My Lords, I renew my previous request to the Minister to ensure-

Lord Hannay of Chiswick: My Lords, does the noble Lord agree that since the deadlock in the talks at the moment is at least half the responsibility of Mr Eroglu, it is pretty odd to be discussing the matter on the Order Paper today?

Lord Howell of Guildford: First, I defer to the extreme knowledge of the noble Lord on this matter. It is very hard to apportion the blame. All the parties concerned say that they want to make progress. The Governments, as it were, of the countries concerned, Turkey and obviously Greece-which are not directly involved because clearly this matter must be left to the people of Cyprus to sort out-have indicated a positive attitude. We have a positive attitude, as does the United Nations, and we just have to take our opportunities as they come. At the moment, the talks of the other day have come to a halt, but the Secretary-General is pressing ahead. He has asked Alexander Downer to do more work and to create a review. If the review is positive, he has said that he would like to move towards a multilateral conference in late April. So there may be hope on this front, but I do not want to raise those hopes too high.

Health and Social Care Bill
	 — 
	Order of Consideration Motion

Moved By Earl Howe
	That the amendments for the Report stage be marshalled and considered in the following order:
	Clauses 1 to 8, Schedule 1, Clauses 9 to 24, Schedule 2, Clauses 25 to 50, Schedule 3, Clauses 51 to 54, Schedules 4 to 6, Clause 55, Schedule 7, Clauses 56 to 60, Schedule 8, Clauses 61 to 75, Schedule 9, , Clauses 76 to 101, Schedule 10, Clauses 102 to 107, Schedule 11, Clauses 108 to 120, Schedule 12, Clauses 121 to 149, Schedule 13, Clauses 150 to 178, Schedule 14, Clauses 179 to 181, Schedule 15, Clauses 182 to 230, Schedule 16, Clause 231, Schedule 17, Clauses 232 to 248, Schedule 18, Clauses 249 to 251, Schedule 19, Clauses 252 to 273, Schedule 20, Clauses 274 to 276, Schedule 21, Clauses 277 to 293, Schedule 22, Clauses 294 to 296, Schedules 23 and 24, Clauses 297 to 305.

Lord Hunt of Kings Heath: My Lords, I am sure that at Report on the Bill there will be issues which relate, however indirectly, to the finances of the National Health Service. Perhaps I may ask the Leader of the House whether the Government could give an indication of the procedural implications for this House on the Welfare Reform Bill following a Statement on financial privilege by the Minister earlier today in the other place.

Lord Strathclyde: My Lords, I thank the noble Lord for his kind invitation for some procedural advice. We will be dealing with the Welfare Reform Bill when it comes back from another place. I should say that matters for privilege are not a matter for the Government but a matter for the House of Commons and the Speaker of the House of Commons on advice from his clerks. The position of privilege has of course been jealously guarded by the House of Commons since 1671. It is well precedented and there is nothing unusual, although the second Chamber might always think that the Commons using financial privilege is a little unfair.
	We will get to that Bill in due course. I cannot comment on the Health and Social Care Bill, which is of course the subject of the Motion before us now, as to what the Government's attitude will be on defeats. But, as I said earlier, there is nothing unusual about financial privilege being prayed in aid. Since there are many former Members of another place present in this House I am sure that they will readily understand.

Lord Grocott: My Lords, the Leader of the House has given us a proper and guarded answer to quite a difficult question. However, does he not agree that this encapsulates the kind of problem which needs to be resolved before we have a directly elected second Chamber? It goes to the heart of one of the issues that has been accepted as the norm by both Houses for many decades but which would undoubtedly be challenged time and again in the event of a directly elected House. I do not expect the noble Lord to give an immediate answer now-he will give a guarded response-but can I try to be helpful and suggest that this is the kind of issue which the committee of my noble friend Lord Richard should look at, and that that may involve an extension of the period of time the committee needs to consider it? But it is clearly issues like this-alongside, in relation to an Oral Question taken earlier, issues like the impact of a referendum in Scotland-which need to be considered by the Joint Committee before we proceed any further.

Lord Campbell-Savours: My Lords, before the House approves the Motion, perhaps I may ask the noble Earl, Lord Howe, a question about the risk register appeal, because we now have some dates that change the debate. I understand that the Report stage is to begin on 8 February and that it is expected to complete by somewhere around the middle of February.

Noble Lords: March.

Lord Campbell-Savours: The appeal on the risk register will be held in a tribunal on 5 and 6 March, and therefore there might be an opportunity for Members to raise the issue of the decisions of the tribunal, depending on the dates that the Government actually set for the Report stage. Would he care to comment on that? Further, if there is not too much flexibility, has the noble Earl considered what the Companion says on the admissibility of amendments tabled at Third Reading:
	"The principal purposes of amendments on third reading are ... to clarify any remaining uncertainties"?
	The risk register may well raise issues that constitute "remaining uncertainties". Can we have an assurance that if it is not possible to raise them on Report, there will be some flexibility at Third Reading under the heading in the Companion that I have just read out, to ensure that we can have a debate on any issue arising out of the tribunal's decisions? I am sorry to have to raise the matter in this way, but this is an opportunity to do so.

Baroness Hollis of Heigham: My Lords, perhaps I may ask a question of the noble Lord, Lord Strathclyde. I ask him as the Leader of the whole House-which I know he is very mindful and respectful of-and not just as the leader of a government coalition party. Whenever we deal with a social security Bill-apart from turning negative regulations into affirmative regulations-that almost inevitably involves expenditure, either increasing it or reducing it. That may also apply to health Bills and transport Bills. If, on any choosing of the Speaker and one of the noble Lord's right honourable friends at the other end in a position of authority, the claim can be made that that is financial privilege-this is before the Speaker has even ruled on it, so clearly there is a government view so far as I can tell; I stand to be corrected-and if any Bill involving any element of expenditure, including on welfare, pensions, health and education, can at the fiat of the House of Commons be ruled as money and therefore privilege, then, taking the noble Lord's statement that this House is a part-time House, it will become a very part-time House indeed because we might as well go home.

Lord Strathclyde: My Lords, let me deal with the two questions put by the noble Baroness, Lady Hollis, and the noble Lord, Lord Grocott. My noble friend Lord Howe, who is an expert on these matters, will respond to the noble Lord, Lord Campbell-Savours. In response to the noble Baroness, as I said earlier, this is a matter for the House of Commons; it is not a matter for me. It is the Speaker who takes a view on the advice of the clerks. I would not be at all surprised if they had had a discussion with the Government, but there is nothing new in any of this. No procedure has changed and no substantive law or practice has done so. It is perfectly possible for this House to suggest and recommend changes to Bills over a whole range of issues, no doubt including financial ones. How the House of Commons deals with those is a matter for that House.
	I thought that the points made by the noble Lord, Lord Grocott, were precisely the kind of points that he might make if a "reform of the second Chamber" Bill were brought forward. I would not dream of trespassing on matters which are the preserve of the noble Lord, Lord Richard, and his Joint Committee. I am sure that they will have taken account of what the noble Lord said.

Lord Hunt of Kings Heath: I thank the noble Lord, Lord Strathclyde. Perhaps I may come back to a point he raised. I am sure that the procedure was followed appropriately in the other place and I assume that the Government made application to the Speaker. The question is whether it was wise for the Government to use this process in this place, because, essentially, they are hiding behind parliamentary procedure to curtail consideration of the amendments that your Lordships passed on the Welfare Reform Bill. In essence, my noble friend has put it absolutely right: if the Government continue to do this on these Bills, our role as a revising Chamber is effectively undermined.

Lord Strathclyde: I simply disagree with the noble Lord. This situation has existed for 350 years. It was as though the noble Lord were suggesting that the Government had found some new ploy to stop the will of the House of Lords. I think that the noble Lord, Lord Grocott, will agree that we are an unelected House. The House of Commons is an elected House. It has protected its financial privilege since 1671. Nothing has changed for the debates that we will no doubt have on the health Bill and the welfare Bill.

Lord Mackay of Clashfern: I wish to question the timing of such a decision on the part of the Speaker. It seems somewhat of a waste of time if your Lordships debate provisions which turn out to be completely sacrosanct because of the decision on privilege made at the other end. The expense involved in your Lordships coming here and taking part seems a waste of taxpayers' money at a time of considerable austerity if the whole procedure is useless. I suggest that the timing of such decisions needs to be looked at.

Lord Martin of Springburn: Perhaps it would help the noble Baroness, Lady Hollis, if I were to say to her that no Speaker takes these decisions lightly. It is not done with representation from the Government, in the sense that they come in and say, "We want to do it this way and you'll give us a hand, Mr Speaker". Perhaps I can give an insight into what happens in the Speaker's study: the Speaker takes advice from the clerks-I stress that is clerks in the plural. You have clerks there who act like the devil's advocate and put a contrary view. They end up giving strong advice to the Speaker. Therefore, the Speaker is independent in this matter of Government and Opposition-let us not kid ourselves that the opposition Whips are not often in there pounding the ear of the Speaker. If the Speaker's signature goes on that piece of paper, it is done very sparingly and with considerable advice from those who are experts in this matter.

Lord Rooker: My Lords, that being so, and referring to the Motion that we are debating at the moment, would it not be for the convenience of everybody concerned with the Health and Social Care Bill if, for every amendment tabled, we knew before we debated it on Report in this House that it was subject to financial privilege? We would then know that we were wasting our time, as the noble and learned Lord, Lord Mackay, said. The problem is the lack of knowledge. If we know beforehand and we have a certificate for a money Bill, we know that it is a money Bill. We do not know that with domestic policy Bills. If particular amendments are a cause for concern among the authorities of the other place, that should be signalled before we debate the issue in this House.

Baroness Farrington of Ribbleton: My Lords, in my experience there are two issues. One is the matter of degree. I hope that the Leader of the House will agree that this is not a clear, black and white issue in terms of the individual parts of a Bill that could be declared financial privilege or the range of parts of a Bill that could be declared financial privilege.
	Secondly, the Leader of the House said the week before last in your Lordships' Chamber, and I hope that I recollect his words accurately, that obviously a wholly or partially elected second Chamber would exercise greater authority and power and have greater legitimacy. Does the Leader of the House believe that people would stand for election were huge chunks of legislation to be declared beyond their competence?

Lord Newton of Braintree: My Lords, to avoid repetition, I say that I would still like to hear answers to the questions raised by my noble and learned friend Lord Mackay, the noble Lord, Lord Rooker, and the noble Baroness, Lady Hollis-what is the point against this background? Also, what is the application to the Bill that we are about to get back to, the Legal Aid, Sentencing and Punishment of Offenders Bill, where a lot of money is also involved? Are we completely wasting our time?

Lord Elton: Would my noble friend enlighten me? I think I know the answer to this, but I may well be wrong: the more an amendment changes the volume of money in issue, the more likely a Bill is to become a money Bill. If that is the case, we all know where we are: it is just a question of how high the bar is.

Lord Strathclyde: My Lords, I am rapidly becoming an expert on privilege, which I was not expecting a few moments ago. I am grateful to the noble Lord, Lord Martin of Springburn, because he explained with his experience the process of deciding privilege in another place, which I repeat is not a matter for me as a member of the Government. Nor is it a matter for the Government or a Member of this House. It is something that has been jealously guarded by the House of Commons for many years.
	My noble and learned friend Lord Mackay, the noble Lord, Lord Rooker, and indeed the noble Baroness, Lady Hollis, raise the same question, which is how we could be pre-warned. I am not sure how that process could take place because we do not know what the Government will lose or what amendments the House of Lords will press to a Division. I dare say that we could. I am thinking as I am speaking, which is always a dangerous thing to do from the Dispatch Box, about a system where amendments might be deemed to be likely to invoke privilege by the House of Commons. But I suspect we can probably do that ourselves. Maybe my noble friend Lord Elton was correct in saying that amendments that mean a substantial increase in expenditure of public spending are more likely to invoke privilege than those that are not. Perhaps that is the way to go.
	I wonder if we are profiting in continuing this debate now. Would it not be better to wait until the Welfare Reform Bill returns from the House of Commons with its amendments to see if privilege has been invoked? There is then a well trodden process in this House. I do not think that the House wastes its time by debating the issues. We do not insist on all the amendments that we pass in this House. We sent them back to the House of Commons to get the Government and the House of Commons to think again. If they have thought again and invoked financial privilege, we should let the matter rest.

Lord Hughes of Woodside: My Lords, I have listened to the noble Lords, Lord Martin of Springburn and the Leader of the House. They both claim, each in their different way, that this is a wholly independent procedure. Are we really to believe that one morning the Speaker gets up and says, "Eureka, I'm going to decide whether this is financial privilege or not"? Who initiates the process? It is hard to believe there was not a nudge and a wink from the Government, to try to save their own blushes.

Lord Howarth of Newport: My Lords, is not the reality that when the Government have run out of arguments and patience they ask the Speaker if he will invoke financial privilege? They cross their fingers and hope that he will do so. Does this Government actually want the House of Lords to operate as a revising Chamber or not?

Lord Strathclyde: I do find it faintly comical that former Members of the House of the Commons, who would have died in a ditch to preserve and protect financial privilege, decide to take a completely different view as soon as they are translated into Members of this House. I said earlier on that surely the time for us to have this debate is when we are faced with the facts of the Bill, with the amendments from the House of Commons. We will have the benefit of seeing the debate that is taking place in the House of Commons as we speak. Would that not be a better way of proceeding? I very much hope that we will be able to pass this Motion from my noble friend Lord Howe, unless he wishes to add anything to the questions that were put to him.

Earl Howe: My Lords, perhaps I could address the question posed by the noble Lord, Lord Campbell-Savours, about my department's risk register. When I last spoke to the House on this matter, I promised to use my best endeavours to ensure that the appeal hearing on the matter of the risk register took place at the earliest possible date. As a result of discussions between my department and the tribunal that will hear the Government's appeal, that date was brought forward from the one that I originally announced to 5 and 6 March. I believe that is a welcome development. The outcome of the appeal will not be known until a few days after that. It is of course a matter for the tribunal.
	As regards the timing of Third Reading, the noble Lord will know that it is a matter for the usual channels in this House. I am aware that there is a Motion in the name of the noble Lord, Lord Owen, which invites the House to consider the matter of the department's risk register before the House goes into Third Reading on the Bill. I suggest that once the timing of the appeal outcome and of Third Reading are known, it would be appropriate to revisit this question. However, it is perhaps a little early to decide now quite what the best order of events should be.
	Motion agreed.

Legal Aid, Sentencing and Punishment of Offenders Bill

Bill Main page
	21st Report from the Constitution Committee
	 22nd Report from the Joint Committee on Human Rights
	21st Repors from the Delegated Powers Committee
	22nd Report from the Delegated Powers Committee

Committee (7th Day)

Relevant documents: 21st Report from the Constitution Committee, 22nd Report from the Joint Committee on Human Rights, 21st and 22nd Reports from the Delegated Powers Committee.
	Clause 45 : Recovery of insurance premiums by way of costs
	Amendment 141
	 Moved by Lord Thomas of Gresford
	141: Clause 45, page 31, line 30, at end insert ", (2A) or (2B)"

Lord Thomas of Gresford: My Lords, Part 2 of the Bill has its complexities, but all sides are agreed on two principles.

Baroness Anelay of St Johns: My Lords, I am aware that the noble Lord, Lord Thomas of Gresford, is hesitating so that he may have the Minister's ear.

Lord Thomas of Gresford: All sides are agreed on two principles-access to justice must be maintained and undue cost must be squeezed out of civil litigation. The issue is what the best framework is for achieving these ends. Unlike with Part 1 of the Bill, public money is not directly involved in supporting the litigation that we are referring to in Part 2.
	All sides recognise the unforeseen and unintended consequences of the Access to Justice Act 1999, which threw the burden of the success fee and the ATE insurance premium on to losing defendants and removed from the claimant any interest in the amount of the success fees and premiums that they were only theoretically obliged to pay. Save for the recent changes introducing fixed fees in Road Traffic Act litigation, lawyers have been able to charge 100 per cent success fees, whether or not they undertake other, riskier cases. Insurers have fixed levels of premiums with which not even the costs judges on taxation are able or willing to quarrel.
	This policy may have helped claimants by allowing them to retain the full amount of the damages awarded to them. However, the removal of the restraint of competition as to the size of success fees and ATE premiums has put an undue burden of fourfold cost on defendant insurers. Ultimately, this is not in the public interest, because insurers take their profit and pass the burden on in increased premiums for motoring, household, employers and public liability insurance. Self-insured large companies and public bodies such as the NHS and public authorities that are funded from the public purse generally carry the burden themselves.
	The Bill proposes to shift the burden. The claimant will pay the success fee, which will be limited to 25 per cent of his damages for pain, suffering and loss of amenity and loss of earnings and expense to the date of trial. He will also carry the burden of the ATE premium to an amount that is not limited. The champagne corks will indeed be popping in the City by relieved liability insurers and in NHS trusts, town halls and board rooms all over the country. If these defendants win, all their own costs will be paid by the ATE insurers-assuming, of course, that there is still an ATE market and that the premium is affordable-unless a regime of one-way cost shifting that I talked about on Monday last is introduced at the same time, which will require defendants, win or lose, to pay their own costs.
	The Jackson report, which sets out all the consultations that Lord Justice Jackson undertook, demonstrates that insurers and public bodies are up for it and accept that one-way cost-shifting, a system that has operated in legal aid cases since 1949, is a fair price for removing from them their present liability for uncontrolled success fees and uncontrolled "after the event" premiums. If one-way cost-shifting is introduced, at a stroke a claimant will lose the fear of having to pay the defendant's costs if he loses the case, costs that might ruin him and remove the roof from over his head. At a stroke, the "after the event" insurance premium, which is currently in place largely to cover the defendant's costs, will be savagely cut back. A claimant will have to cover only the risk that if he loses he will be responsible not for the defendant's costs but for his own disbursements, court fees, expert and medical fees. Just as it is conceivable that in competing for business a solicitor might advertise that he will not charge a success fee, a solicitor with a large standard practice might well be prepared to absorb disbursements in the cases that he loses. We shall have to see whether that happens.
	All this is by way of introduction to my amendments, which deal with a discrete area of litigation-environmental law, involving public law and private claims and the tort of nuisance. Public law cases are judicial review claims brought mainly by individuals concerned by inappropriate development-for instance, whether planning permission has made proper allowance for the effect on local flora and fauna by a particular development or whether a waste dump is in the right place. Private nuisance has enjoyed a real renaissance through the help of independent solicitors since the access to justice scheme came into being. A private nuisance is an interference to land or to rights associated with land caused by the unreasonable conduct of the defender. It is the last resort for local residents who need injunctive relief from a polluter who will not run his enterprise with proper concern for his neighbours, and where the regulator is unable or unwilling to take steps to abate the problem.
	I am indebted to Stephen Hockman, Queen's Counsel, a former chairman of the Bar, Stephen Tromans, Queen's Counsel, named as environment/planning Silk of the Year at the Chambers Bar Awards 2011, and Gordon Wignall, a barrister specialising in nuisance cases and editor of the third edition of the Law Society's Guide to Conditional Fees. I have circulated copies of their joint opinion on the impact of the Aarhus convention on costs and funding rules that are applicable in environmental cases.
	The Aarhus convention is concerned with access to justice in environmental matters and was ratified by the United Kingdom in February 2005 at the same time that it was ratified by the European Community. The relevant text is set out in the opinion, but the effect is that the United Kingdom is bound to provide "adequate and effective remedies" in this area,
	"including injunctive relief as appropriate, and be fair, equitable, timely and not prohibitively expensive".
	The convention applies both to judicial review claims in the administrative court and to private law actions in nuisance. The Supreme Court, in a recent case, has referred the question as to the test to be applied in order to determine whether proceedings are "prohibitively expensive" to the European Court of Justice. In one case that is quoted in the opinion, for example, a defendant's costs amounted to well over £3 million. Is that prohibitively expensive?
	Since the Minister and others already have a copy of the full opinion, I will simply put the conclusions of the learned counsel on the public record. First, the current costs rules run contrary to the international treaty obligations of the United Kingdom, which the United Kingdom voluntarily accepted. Problems arise largely out of the insistence on the "costs follow the event" rule, which tends to lead to inconsistency with the aims of participating in environmental justice and results in a claimant's liability to pay prohibitively expensive costs.
	Secondly, the compliance committee's last deliberation in the ClientEarth case required the United Kingdom to review its costs rules and recommended rectification. Thirdly, two detailed reviews relevant to environmental proceedings in England and Wales have subsequently been undertaken and presided over by members of the Court of Appeal. The learned counsel are referring to the Jackson report, which we have been discussing, and to the report of Lord Justice Sullivan on access to environmental justice. These have been endorsed by the senior judiciary, and the primary recommendation was that the use of qualified one-way cost-shifting in environmental cases would have a dramatic inroad into the "costs follow the event" principle.
	Fourthly, by withdrawing the recovery of "after the event" premiums, the size of which cannot be met by claimants or their legal representatives, without providing at the same time for one-way cost shifting as a replacement in environmental claims, the Government have elected to retreat from the full proposals of the Jackson report and the Sullivan report, which were conducted by those eminent Lords Justices. Fifthly, the consequence is that the United Kingdom, already in breach of its convention obligations, is diverging from rather converging with its own environmental expectations and those of the international community.
	Sixthly, the further consequence is that claimants who wish to protect the environment and participate in environmental justice are even less likely to be able to do so than at present. This is predominantly because of the risk of incurring a liability for defendant's costs that may well be prohibitively and grossly expensive in any event, but also because of the uncertainty that claimants face about their liability for those costs, which under the Government's proposals will be known only once the litigation, whether public or private, has been concluded.
	Claimants in environmental cases do not want damages; they want relief from the consequence of poor decision-making by public bodies or protection from the degradation of their environment. Even in multiparty actions, damages-based agreements are not a solution. My amendments would enable the Government to honour their international environmental obligations rather than turn their back upon them.
	Amendment 147 would provide in subsection (2A) that in an environmental claim the losing defendant would pay the premium in respect of disbursements by way of fees for expert reports paid by the claimant. In subsection (2B), the losing defendant would pay the premium on the costs insurance policy if he had agreed to do so prior to the commencement of the proceedings. There are occasions when a defendant will agree to pay the claimant's premium for "after the event" insurance whether he wins or loses, because if the defendants succeed then they will get all their costs from the ATE insurers.
	Amendment 150 defines "environmental claim" by the same definition as is contained in the Aarhus convention. The use of this definition would ensure that only nuisance cases that were truly environmental in nature would be within the scope of my amendment. Insurance recovery claims and private nuisance-for tree-root subsidence, for instance-would not get the amendment of the amendment.
	Amendment 157 would introduce qualified one-way cost-shifting in both environmental claims and other claims. The amendment was drafted before I had refined my own views, which I explained at small length on Monday last on this topic. The word "unreasonably" therefore appears in the amendment but I repeat my objections to the vagueness of the word "unreasonable" and reiterate the necessity for clarity by expanding what is unreasonable, as Lord Justice Jackson did, into the familiar expressions of "fraud", "frivolous and vexatious conduct" and "abuse of the process of the court".
	Why should we single out environmental law for different treatment from other areas of litigation? Essentially, I am not. In the amendments I am arguing for one-way cost-shifting as a precondition for change and for the premium for cover for disbursements-a far lesser amount than the current premiums recovered against the potential defendant's cost liabilities-to be recovered from the losing defendant. That is very similar to what I was saying on Monday, when I suggested that there are positive benefits in dividing liability for these lesser premiums between the claimant and the defendant in a staged way. In any event, the issue is far more urgent in environmental cases because of our obligation to comply with the Aarhus convention.
	A tidy mind might try to bring every aspect of litigation into one structure, one piece of architecture-the word that the Minister used on Monday-but litigation is not like that. Time and again the Jackson report emphasises that one size does not fit all. I quote from page 44:
	"many submissions during the Costs Review have emphasised that 'one size does not fit all'. The Bar Council, for example, states: 'What is abundantly clear, from Jackson LJ's Preliminary Report and from the Bar Council's review, is that "One size does not fit all." Particular types of litigation give rise to particular issues, be they funding issues, case management issues or otherwise".
	That is a recurring theme in the Jackson report and every practising lawyer will agree.

Lord Carlile of Berriew: I apologise for interrupting my noble friend. Before he sits down, will he help us on this matter in relation to his narrower point on the Aarhus convention? He was kind enough to circulate the learned opinion of Mr Hockman and others, including, as I understand it, to my noble friend the Minister. Will my noble friend tell the House whether he has had a response to the opinion of Mr Hockman and others? If not, does he agree with me that it might shorten the debate if, after he has sat down, the Minister were to indicate whether or not the Government accept the premise of the Hockman opinion?

Lord Thomas of Gresford: I am most grateful to my noble friend for interrupting me with one paragraph to go, which would have relieved your Lordships a great deal. The opinion has only recently been produced to me and the Bill team has had it only for a day, so I could hardly expect an immediate response. I hope that my noble friend the Minister will be able to deal with some of the issues that are raised and the issues that I am raising in my remarks.
	To conclude, the one size does not fit all is a recurring theme in the Jackson report. Every practising lawyer will agree with that. Proof of the issues that arise in litigation-sometimes liability, sometimes causation, sometimes quantum, and so on-gives rise to different risks and therefore to different solutions. This very Bill, for example, proposes different statutory instruments making different provision for different types of case. I look forward to hearing my noble friend's response in due course. I beg to move.

Lord Lester of Herne Hill: My Lords, I must choose my words carefully because I do not wish what I say to be taken to be outright opposition to my noble friend's amendments, although I have a certain degree of agnosticism, if not scepticism. I suggest that those who are interested in this area might read the New Yorker article of a couple of weeks ago, which described the abuse of power by the claimant lawyers in the Exxon South American environmental litigation case. That indicates the need for very careful safeguards, even in an environmental setting.
	The only reason I speak at all is because it occurs to me that there is a less radical solution to some of the problems that has been fashioned by the courts themselves without any legislative intervention: namely, the protective costs order. I see that the noble Lord, Lord Beecham, shakes his head. I shall explain what I am talking about. The problem with English cost rules is, of course, the winner-takes-all rule, which can, as my noble friend has indicated, have a seriously chilling effect on the ability to bring public interest litigation. It is the fear of claimants and their advisers of having to pay the legal costs of the defendant that has a chilling effect.
	I was involved in the Corner House case for a small NGO that was seeking to challenge the lack of proper consultation by the Secretary of State in relation to anti-corruption provisions in the export guarantee area. This was not an environmental matter but it did concern public law. The problem was that the little NGO had absolutely no funds to pay for me but, more importantly, the department. The department would not give an assurance in advance that if it succeeded, it would not ask for the whole of its costs against the NGO. Therefore, the puzzle was how the NGO could bring the public interest proceedings not simply by dealing with the claimant's position but dealing with the other side.
	Sir Henry Brooke, to whom I pay tribute and who throughout has led thinking on this issue within the judiciary, advocated the use of a protective costs order, which enabled us to go before the court and say, "Even if we lose, can we please have a protective order that protects us against the risk of having to pay the other side's legal costs in advance, so that we know that the worst thing that could happen to the Corner House NGO would be if it had to pay its own costs?". I am glad to say that that was what was eventually decided and the result was that the Corner House was able to litigate.
	I am embarrassed to say that I signed a 100 per cent success fee agreement without realising the consequence, which was that I actually profited from what I had thought to be a public-spirited case. I did not return the money, since it was being paid by the Government. I am against 100 per cent success fees and I would never do it again-ever.
	However, the point I am making is not about success fees, but that if one develops through the courts, on a case-by-case and flexible basis, a way of softening the winner-takes-all rule in appropriate cases-not just environmental but all cases-that would enable the weak and impecunious to avoid the effect of that rule. The Constitutional Court of South Africa has decided that the winner-takes-all rule should never apply in important constitutional cases, and that in a proper public-interest case each side should at least bear its own costs and, in some circumstances, the Government should be required to pay the claimant's costs, or give an undertaking in advance to give that protection.
	This is a slightly long-winded way of saying that there are other means that perhaps are to be encouraged by the legislature, or perhaps not. There are other means that the courts themselves have been developing that can deal with some of the points made by my noble friend without something quite as radical as the proposals suggested in his amendments.

Lord Avebury: My Lords, does my noble friend agree that the protective costs order that he was successful in obtaining in the case he mentioned was a one-off, that it was not a general rule of law but a matter of luck that his clients were indemnified against the likelihood that they would have to pay the other side's costs, and that in the amendment that would be a general rule of law that would apply to all such cases?

Lord Lester of Herne Hill: Actually, I cannot agree, because the Court of Appeal's decision was a kind of precedent and it has been followed. There have been arguments about what limits there should be on claimants-whether they should be like an NGO or otherwise-but it would be perfectly possible for a rule to be made by the Lord Chancellor expressly empowering the courts to apply protective costs orders on a more general basis. This was not just a one-off decision; it applied in a line of cases and has been developed since.

Lord Thomas of Gresford: I am sure that my noble friend would agree, however, that protective costs orders are matters of discretion for the judge who hears an application, and that the threshold is extremely high. In his particular case, he obviously advanced matters of considerable public interest that were much wider than only the issues in the litigation that affected his clients. So a protective costs order can be applied for in such cases. However, I was involved in the case following the flooding of houses at Aberfan that occurred as the result of the spoil banks placed there after the disaster. In that sort of case, where individual householders were affected, protective costs orders would not have met that threshold.

Lord Beecham: My Lords, at the risk of being accused of unqualified one-way sycophancy, I must again congratulate the noble Lord, Lord Thomas, on the clarity of his presentation of this complex issue. Although I somewhat dissociate myself from the preamble to the substantive part of his speech, I entirely concur with his amendments. At this stage, I should also express my thanks to the learned counsel whose advice has instructed me in a matter about which, hitherto, I knew nothing. Aarhus meant absolutely nothing to me up till now. It seems that I may have shared that failing with Her Majesty's Government. We shall see from the Minister's reply whether that is a correct inference or not.
	The noble Lord referred to the ClientEarth case in which the Aarhus Convention Compliance Committee observed that the cost rules pertaining in the United Kingdom placed it in systemic breach of Article 9.4 of that treaty. The committee concluded that we had not as a country adequately implemented our obligation to ensure that procedures are not prohibitively expensive. Counsel's opinion, to which the noble Lord referred, identified two particular issues. The first is that of uncertainty. The second is the sheer amount of the defendant's costs that might fall on unsuccessful claimants. The noble Lord referred to the case of Barr and Biffa waste company, which arose from a complaint about odours emanating from a landfill site, where the costs were indeed nearly £3,250,000.
	Lord Justice Jackson has much to say about those issues. His remedy is, as the noble Lord pointed out, a move to qualified one-way cost shifting. He gave six reasons for his conclusions, which are germane to the thrust of the amendments. He said:
	"This is the simplest and most obvious way to comply with the UK's obligation under the Aarhus Convention in respect of environmental judicial review cases".
	He continued:
	"For the reasons stated by the Court of Appeal on several occasions, it is undesirable to have different costs rules for ... environmental judicial review and... other judicial review cases".
	His third reason was that the requirement for permission,
	"is an effective filter to weed out unmeritorious cases. Therefore two way costs shifting is not generally necessary to deter frivolous claims".
	They simply do not arise. His fourth point was that,
	"it is not in the public interest that potential claimants should be deterred from bringing properly arguable judicial review proceedings by the very considerable financial risks involved".
	He pointed out that:
	"One was costs shifting in judicial review cases has proved satisfactory in Canada".
	His final point, which goes to the issue raised by the noble Lord, Lord Lester is that the protective costs order regime,
	"is not effective to protect claimants against excessive costs liability. It is expensive to operate and uncertain in its outcome. In many instances the PCO decision comes too late in the proceedings to be of value".
	So with respect to the noble Lord, the protective costs order regime is not, in the view of Lord Justice Jackson, an answer to the difficulty.

Lord Lester of Herne Hill: I hesitate to disagree with the Lord Justice, but I do not understand that point, as one can apply at the very beginning, a very early stage, for a protective costs order-certainly in judicial review proceedings. I do not know why he thinks that it is too expensive or comes too late, because that has not been my experience.

Lord Beecham: I cannot answer for Lord Justice Jackson, but that is a subsidiary point. His point is that it is expensive to operate and uncertain in its outcome. Therefore, he regards it as an inadequate to the one-way costs shifting which the noble Lord, Lord Thomas, has rightly advanced as the best way to deal with these matters. Lord Justice Jackson's approach was, as counsel's opinion, to which the noble Lord and I have both referred, makes clear, endorsed by Lord Justice Sullivan's working party, which was very clear in saying:
	"An unsuccessful Claimant in a claim for judicial review shall not be ordered to pay the costs of any other party other than where the Claimant has acted unreasonably-
	to go back to the noble Lord's earlier point-
	"in bringing or conducting the proceedings".
	I rely heavily, as noble Lords will have gathered, on the opinion of learned counsel, which some of your Lordships will have seen, and certainly the Minister, and more particularly-and perhaps in a sense, in fairness to him, more relevantly-those who advise him will have seen. Counsel make some interesting observations. They say:
	"It is disappointing to see that whilst the senior judiciary increasingly recognises the relevance of the Aarhus Convention as a requirement of the rule of law, the Government's own legislative proposals do not recognise, or are not concerned with, the United Kingdom's difficulties in complying with the Convention.".
	They go on to say, among other points, that,
	"it does not appear to have been appreciated by those responsible for Part 2 of the Bill-
	this very Bill-
	"that if the intention of the Government's proposals is indeed to reduce the costs of litigation, then the replacement of the need for ATE insurance altogether by the use of QuOCS would have a massive positive effect, particularly when combined with the inability to recover success fees: it would genuinely encourage participation in matters concerning the environment as envisaged by Aarhus. Lord Justice Jackson's proposals would stand some prospect of success in his aim of promoting rather than impeding access to justice".
	Learned counsel conclude:
	"In the circumstances, it is clear from the Aarhus Convention Compliance Committee that current costs rules run contrary to the international treaty obligations of the United Kingdom which the UK voluntarily accepted".
	They go on to say:
	"Two detailed reviews relevant to environmental proceedings in England and Wales have subsequently been undertaken and presided over by members of the Court of Appeal. They have been endorsed by the senior judiciary. The primary recommendation was"-
	again-
	"the use of QuOCS in environmental cases, which would have a dramatic inroad into the 'costs follow the event' principle".
	Counsel say:
	"By withdrawing the recovery of ATE premiums (... which cannot be met by claimants or their legal representatives) without providing at the same time for QuOCS",
	the Government have retreated from the full proposals of the two reviews conducted by the judiciary. Furthermore, they say:
	"The consequence is that the UK, already in breach of its Convention obligations, is diverging from, rather than converging with, its own environmental expectations and those of the international community".
	Finally, they say that,
	"claimants who wish to protect the environment and participate in environmental justice are even less likely to be able to do so than at present".
	That is a pretty comprehensive and damning indictment of the Government's approach to their responsibilities under the Aarhus convention to international law and, more particularly, to potential claimants in this country dealing with significant issues concerning the environment and what is adversely affecting the environment.
	The remedy is in the Government's hands. It is, in their cherry-picking process of dealing with Lord Justice Jackson's report, to pluck this particular cherry and use it for the benefit not only of the citizens of this country but of this country's observance of its international obligations. I strongly support the noble Lord's amendment.

Lord McNally: My Lords, I am most grateful to the noble Lord, Lord Thomas, for his usual thorough presentation of these amendments and for sending me this opinion of learned counsel, which, as he rightly said, was delivered only 24 hours ago. Even though, as the noble Lord, Lord Bach, will know, the Ministry of Justice is one of the most efficient and speedy departments in Whitehall, the matter is still in the hands of my advisers, and I am sure that we will take it on board. In passing, I should say that I had to clear another piece of paper the other day about asking the advice of learned counsel, and I saw just how much it costs to ask for such advice, so I thank the noble Lord for such an expensive gift.
	I was also interested in the confession of my noble friend Lord Lester about accepting success fees. As the debate has unfolded, it has occurred to me that this is indeed a money Bill, but perhaps not in House of Commons terms. Let me also deal with another canard or slur that has been put across the Chamber from the noble Lord, Lord Beecham: that the Aarhus convention is something new to the Government or to government Ministers. Perhaps I can draw his attention to the fact that on 19 October, we in the Ministry of Justice sent out a consultation paper, entitled Cost Protection for Litigants in Environmental Judicial Review Claims,with the specific aim of enabling the UK to implement its obligations under the Aarhus convention. Yet again, when the facts are known, it is clear that the Government are on the case, on the ball and moving forward, despite the attempts of the Opposition to say otherwise.

Lord Beecham: It is said that they are in breach of their obligations under the convention.

Lord McNally: As I said, we are consulting. I shall return to the question of getting it right. The problem is that the noble Lord, Lord Beecham, is impetuous in so many ways, whereas this Government are determined to get things right-you can see the advice that I get on getting things right.
	On Monday, we spent some time discussing QOCS and we heard the concerns of my noble friends and others that the matter should appear in the Bill. This afternoon, I do not want to repeat the more general arguments on these matters, but we need to get the details and the rules right to ensure that they are tailored properly in respect of the category of proceedings to which they apply. For example, in personal injury cases, it may well be that there should not be an initial financial test. However, the position is likely to be different for defamation, and perhaps for environmental cases too, which typically involve more than one claimant-sometimes many claimants. In such cases the costs involved can impact considerably on the ability of the public bodies that are under challenge to perform their general functions.
	As the noble Lord, Lord Thomas, explained in moving his amendment on Monday, he was looking for specific words rather than words like "unreasonable", which he said had such a broad meaning. Indeed, the noble and learned Baroness, Lady Butler-Sloss, added that the word "unreasonable" was liable to cause serious difficulties of interpretation and yet, as the noble Lord, Lord Thomas, has confessed, the word "unreasonably" is in Amendment 157.
	It is precisely for those reasons that we are not yet ready to crystallise in statute, and ring-fence away from development in rules, words which are more properly left to the rules, where they can follow detailed discussions with stakeholders. They can be tailored and nuanced for the particular category of proceedings and, of course, the Lord Chancellor will remain accountable for the policy on these issues which is reflected through the Civil Procedure Rules.
	Amendments 141, 147, 148, 149 and 150 deal with the recovery of ATE insurance premiums in respect of environmental claims under the Aarhus convention. Amendment 157 would introduce a new clause to provide for costs protection in the form of qualified one-way costs shifting-QOCS-for claimants in environmental claims and, it would appear, for all judicial review claims, whether concerning environmental issues or not.
	The Government are, of course, conscious of their obligations under the Aarhus convention. Put simply, the convention requires us to ensure that parties have access to a procedure to challenge relevant environmental decisions that is, among other things, not prohibitively expensive. How we discharge those obligations has been a matter of debate for some time. It was addressed by Lord Justice Jackson in his report and was considered in a number of cases in the High Court and above. Amendments 141, 147, 148 and 149 seek to allow ATE insurance premiums to be recoverable from the other party in these cases. As I indicated in our debate on Monday, the Government's policy is that ATE insurance premiums should no longer be recoverable except in the particular instance of clinical negligence expert reports. Therefore, we do not favour this or any other extension of ATE premium recoverability.
	Amendment 157 seeks to apply QOCS to environmental claims, subject to qualification in respect of unreasonable behaviour. The proposed clause would displace any rules of court in this area and provide for the Lord Chancellor instead to have the power to make regulations to extend QOCS to other areas in future. That seems to be something of a departure from the general principle that in civil proceedings, matters relating to costs are regulated in detail by rules of court. It is not clear why the departure would be beneficial.
	As noble Lords are aware, the Government are introducing a regime of QOCS in personal injury cases to help balance the impact of the changes to no-win no-fee conditional fee agreements, and in particular as an alternative to "after the event" insurance. Claimants will continue to be able to take out ATE insurance if they wish, but they will pay the premium, which will be lower than the rolled-up premiums presently never paid by anyone other than a losing defendant. Although Lord Justice Jackson suggested that QOCS might be considered for use in some non-personal injury claims, the Government are not persuaded that the case for this has yet been made.
	I noted the dispute between the noble Lord, Lord Beecham, and my noble friend Lord Lester about protective costs orders, which are also part of this consultation. As a matter of principle, the Government's view is that protective costs orders can provide appropriate costs protection in environmental cases. Environmental organisations and the working group chaired by the then Mr Justice Sullivan, to whom noble Lords referred, expressed a preference for QOCS, having argued, including in a submission before the Aarhus Convention Compliance Committee, that an appropriate PCO regime could provide full compliance with the requirements of the convention. With a PCO, it will be clear from the outset what costs the claimant will have to pay if their claim is unsuccessful, while ensuring that some contribution is made toward the costs of public bodies that have successfully defended the claim. As I said, we have consulted on the issue.
	The Ministry of Justice consultation Cost Protection for Litigants in Environmental Judicial Review Claims outlines proposals for a cost-capping scheme for cases that fall within the Aarhus convention. The consultation closed on 18 January and we will announce the way forward in due course.

Lord Lester of Herne Hill: I had not realised that there was a consultation, and I am delighted to hear that that has now been done. The issue seems to go beyond environmental litigation. Perhaps further thought might be given within the costs rules to a user-friendly procedure in all public interest cases whereby the individual can obtain an order quickly and at the beginning, as recommended by Lord Evershed's committee in 1950. Lord Evershed recommended that the Attorney-General should be able to certify an issue of public interest where the costs rules would be displaced. I realise that this matter would be for the rules committee, but could consideration be given to that sensible procedure that would be not generalised but case based, on a user-friendly procedural basis, with the judge giving a decision so that people will know where they are from the beginning?

Lord McNally: I am not sure that I am able to commit to anything as rash as following up a recommendation that is a mere 62 years old. As always with interventions by my noble friend, I will take that away, but I should also make the point, given that this is the last of a series of amendments chipping away at-to use the term that I used the other night-the central architecture of the reforms that we are trying to introduce, that we have consulted on these matters. We have indicated the idea that PCOs may be a way forward in our commitment under the Aarhus convention. I will certainly make sure that the learned counsel's opinion is fully studied. As I have explained, the Government's view is that the best way forward is within the rules rather than within legislation, but this has given a good airing to the issue. The whole House is now more familiar with the Aarhus convention-I understand it is a Danish town-and we are the better for that debate. I therefore ask my noble friend to withdraw his amendment.

Lord Thomas of Gresford: My Lords, it is a relief to know that the Ministry of Justice, like New York, never sleeps. No doubt the opinion will be pored over and there will be further discussions before we get to Report.
	I invite my noble friend to do this now. He says that the proper way to proceed is for one-way cost-shifting to be introduced by tailored Civil Procedure Rules. Your Lordships will recall that on Monday the noble and learned Baroness, Lady Butler-Sloss, and I made the point that there should be guidance from Parliament, not simply a discussion between the Executive and the Civil Procedure Rule Committee, about the parameters of those rules and what the boundaries and structure are to be. I would be grateful to know from the Minister the position on this particular point. He is shifting the burden of the success fee and the ATE premium over to the successful claimant. Is that going to be co-ordinated and timed to come into effect at the same time as one-way cost-shifting? That is the key issue. If you do not have one-way cost-shifting, you are shifting to the claimant the liability for the defendant's entire costs, if he should lose, and consequently an enormous premium. We heard of premiums of £900,000. I am familiar with a premium of £80,000. I think that the standard is in thousands for any sort of claim. If, on the other hand, one-way cost-shifting comes in and the defendants' costs are paid by the defendants win or lose, we will be concerned with a premium for a much smaller thing, which is the disbursements of the claimant, should he lose. The risk is that much smaller.

Lord Bach: We on this Front Bench agree absolutely with the question that the noble Lord, Lord Thomas of Gresford, has asked the Minister. It is crucial. To broaden the point slightly, the great danger in the Bill is that we are changing the current arrangements, but the way that they will work in practice is subject to regulations of which there is no sight at present. We need from the Government a statement about how they intend to implement this part of the Bill if they get it through. We have no idea at all. The example that the noble Lord gave is the best one of all. It is critical, but there are other examples where a great deal relies on regulations that are to be made at a later stage, sometimes to be passed by affirmative resolution, sometimes by negative resolution. It is not really a satisfactory way of changing the civil law in such a fundamental way. I would be grateful if the Minister, in his reply to the noble Lord, Lord Thomas of Gresford, would deal with the general point as well.

Lord De Mauley: He did.

Lord McNally: The noble Lord is absolutely right. I have given my reply. That was the reply of the noble Lord, Lord Thomas, to my reply. But I am very happy to take the point. We are considering a consultation. We have said that our judgment is that it is better in rules rather than in the Bill.

Lord Bach: Should all that not have been done before the legislation comes before one House, let alone a second House of Parliament? The result of the consultation, or the Minister's consideration of it, will probably not be known until this Bill has become law. Is that not much too late and entirely the wrong way round?

Lord McNally: The pained look with which the noble Lord, Lord Bach, comes to the Dispatch Box and implies that the Government is the first Government in the world to bring forward legislation with further consultations needed about specific regulation is a bit rich. The implications of this Bill will come into force in April 2013. We have a period of time for such consultations. As I said before, I take the point that there has to be a synchronisation in these matters. I do not think we are doing anything unusual by legislating in this way, but we take on board the points made in this debate.

Lord Thomas of Gresford: I am grateful to my noble friend for saying there will be synchronisation. The scales of justice have been tipped against defendants by this fourfold cost that they have been calling for over a period of time. The purpose of this Bill is to even the scales of justice up. If there is any period between shifting from that side to this side the success fee and the ATE insurance without providing one-way costs as the balance, the scales will go completely in the opposite direction, and it is the suffering claimants who will come out the worst in a situation like that.
	I cannot resist coming back to the question of protective costs orders, having heard my noble friend Lord Lester. Protective costs orders are applied for in public interest cases. I am not concerned simply with public interest cases. These could be the private individual, the householder whose house is flooded, in the example that I gave-

Lord Lester of Herne Hill: They are also applied for in private lawsuits.

Lord Thomas of Gresford: It is as my noble friend says. Lord Justice Jackson examined it and he came to the conclusion that the noble Lord, Lord Beecham, referred to. There is much more discussion to be had. I shall take my noble friend outside-as I once said in relation to one of the Ministers in the previous Government-and have a discussion with him there. For the moment, I withdraw this amendment.
	Amendment 141 withdrawn.
	Amendments 142 to 156AB not moved.
	Clause 45 agreed.
	Clause 46 : Recovery where body undertakes to meet costs liabilities
	Amendments 156B and 156C not moved.
	Clause 46 agreed.
	Amendment 157 not moved.
	Clauses 47 to 52 agreed.
	Clause 53 : Payment of additional amount to successful claimant
	Amendments 158 to 162 not moved.
	Clause 53 agreed.
	Amendment 163
	 Moved by Lord Thomas of Gresford
	163: After Clause 53, insert the following new Clause-
	"Third party litigation funding
	(1) A third party litigation funding agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of it being a third party litigation funding agreement; but any other third party litigation funding agreement shall be unenforceable.
	(2) A third party litigation funding agreement is an agreement under which a third party ("the funder") agrees to fund (in whole or in part) the provision of advocacy or litigation services to another person ("the litigant") by a person other than the funder in exchange for remuneration.
	(3) For the purposes of subsection (2), "remuneration" includes-
	(a) a payment or any other transfer of value representing or calculated by reference to the value of a judgment or settlement; and
	(b) an assignment of the proceeds (in whole or in part) of any judgment or settlement.
	(4) The following conditions are applicable to a third party litigation funding agreement-
	(a) it must be in writing;
	(b) it must not relate to-
	(i) proceedings which by virtue of section 58A(1) and (2) of the Courts and Legal Services Act 1990 cannot be the subject of an enforceable conditional fee agreement;
	(ii) a multi-party action, representative action or any proceedings which are the subject of a group litigation order; or
	(iii) any other proceedings of a description prescribed by the Lord Chancellor;
	(c) it must comply with such requirements as shall be prescribed by the Lord Chancellor.
	(5) Regulations under subsection (4)(c) may-
	(a) require any person which enters into a third party funding agreement with a litigant to first obtain a license from a licensing body to be designated by the Lord Chancellor; and
	(b) set out conditions to be satisfied in order to obtain such a license.
	(6) In this section "advocacy services" and "litigation services" are as defined in section 119 of the Courts and Legal Services Act 1990."

Lord Thomas of Gresford: My Lords, in June 2007, the Civil Justice Council-a body headed by the Master of the Rolls and comprising members of the judiciary, the legal professions, civil servants and lay people with knowledge of consumer affairs, CABs, businesses and employers-published advice to the Lord Chancellor recommending the proper regulation of third-party funding; that is, investment by an external party otherwise unconnected to a claim in a lawsuit in order to gain a maximum return upon its investment. In this country, it used to be called maintenance and champerty, and it was both a crime and a civil tort. In 1641, maintenance was described by the jurist Coke in his Institutes as:
	"A taking in hand, a bearing up or upholding of quarrels or sides, to the disturbance of the common right".
	"Champerty" is the "maintenance" of a person in a lawsuit on condition that the subject matter of the action is to be shared with the maintainer. It was abolished as a crime in the United Kingdom in 1967 but as recently as July 2009 a solicitor in Hong Kong, where the offence still exists and carries a maximum sentence of seven years, was sent to prison for some 15 months. It remains illegal also in New Zealand but not in the United States.
	As the practice has spread across the water into this country, specifically targeted at claim by small and medium business enterprises against large corporations, the Civil Justice Council formed a working party to consider the issue further. Consultations took place in February and July 2008 when a draft code of conduct for a third-party funding, which the working party had produced, was considered.
	Following Lord Justice Jackson's recommendations -he obviously considered this as well as conditional fee agreements-the draft code of conduct was revised. In February 2010, the Civil Justice Council held another stakeholder event to consider the revised code. The working party, under the chairmanship of the very eminent solicitor and Queen's Counsel Michael Napier, chairman of Irwin Mitchell, which is essentially a leading claimants' firm, produced a voluntary code of conduct for litigation funders, which was published on 23 November 2010. This voluntary code sets out standards of practice and behaviour to be observed by funders who are members of a newly founded Association of Litigation Funders of England and Wales. Without in any way impugning the very hard work of the members of the working party or the motivation of the new association, I am not at all content that this development in litigation funding should be subject to a voluntary code without any parliamentary debate, approval or control-of course I appreciate that it was put together under the auspices of the Civil Justice Council.
	When Lord Justice Jackson considered this issue in his final report, he recommended that a satisfactory voluntary code to which all litigation funders would subscribe should be drawn up, and to that extent his preliminary recommendation is followed up by this code. But he went on to say that the code should contain "effective capital adequacy requirements" and should place appropriate restrictions on the ability of funders to withdraw support for ongoing litigation. His second recommendation was that,
	"the question whether there should be statutory regulation of third party funders by the FSA ought to be revisited if and when the third party funding market expands".
	It is expanding and is continuing to do so and, as Lord Justice Jackson recommended, the question of whether there should be statutory regulation is the question I am raising in this debate.
	His third recommendation is very important. He said that,
	"third-party funders should be potentially liable for the full amount of adverse costs, subject to the discretion of the judge".
	In the voluntary code, which was published in November, there are manifest weaknesses. Rule 7(a) says that a funder will ensure that a litigant has received "independent advice" on the terms of the agreement, but then states specifically that such advice can be obtained,
	"from the solicitor instructed in the dispute"-
	the very lawyer who is to be funded by the funding arrangement. The conflict of interest is obvious in such a situation. Rule 8 says that the funder must state in the funding agreement whether he is undertaking "liability for adverse costs". It certainly does not say that the funder must undertake such a liability. This is directly contrary to the third recommendation made by Lord Justice Jackson, which I made clear to your Lordships a moment ago. The funder could walk away and leave a small business to carry the costs of the other side, which would leave it completely broke. If a funder is to take a percentage of the damages awarded to its clients, which is the purpose of the funding agreement, the funder should bear the risk of paying the other side's costs if he loses.
	Rule 9 of the voluntary code provides that the funding agreement,
	"shall state whether (and if so how) the Funder may ... provide input to the Litigant's decisions in relation to settlements".
	It further provides that the funder may terminate the agreement if he,
	"ceases to be satisfied about the merits of the dispute;
	(ii) reasonably believes that the dispute is no longer commercially viable".
	In other words, the funder may dictate to the litigant that a particular offer to settle must be accepted under the threat that he will withdraw his support. If there is to be fairness, the funder should continue to fund disputes until they are finally resolved. Further, a funder may dictate to counsel how to conduct a case, putting counsel in the particular case in the impossible position of having to choose between the interests of his client and the interests of the funder, who is actually paying his fees and the fees of his instructing solicitor. Rule 9 simply does not match the first of the Jackson recommendations. As I say, for the moment Lord Justice Jackson was prepared for there to be a voluntary code, but that it,
	"should place appropriate restrictions upon funders' ability to withdraw support for ongoing litigation".
	In the face of that recommendation, what does the voluntary code say? "Oh well, he can withdraw if he decides that the case is not going very well." He can terminate it if he ceases to be satisfied about the merits of the dispute.
	I have had a very constructive discussion with Mr Leslie Perrin, who facilitates litigation funding and is a former solicitor. I accept, as he has argued, that if a wrong is done to a business, it is very frequently a contractual wrong that hurts that business's profitability, so that damages will include not only the cost of putting right the immediate damage but also the profits lost as a consequence of the wrong-it is a commercial situation. A commercial litigation claim could be said to be a business asset and tradable as such. But there are many areas of litigation where a wrong has been done, of which personal injuries is a prime example, where the litigation is not an asset and should not be traded as such. No speculative hedge fund looking for somewhere to get a good return on its money should have an interest, for example, in a share of the damages of a seriously brain-damaged claimant.
	While as yet, so far as we can tell, litigation funding has not spread into personal injuries as it has into divorce litigation, there is nothing in the voluntary agreement of November last to prevent it. No categories of case are excluded. According to Mr Perrin, the industry asked the working party to limit the code and the association to commercial litigation but, for some reason that I do not understand, it did not agree to that, so it is wide open for third-party funding to be available in serious personal injury litigation where large sums of money are at stake. I do not regard this as assisting in access to justice; rather, it takes us back to the old days of maintenance and champerty-hence, my amendment.
	I do not suggest in my amendment that third-party litigation funding should be banned, provided that it complies with conditions, some of which I set out and others to be prescribed by the Lord Chancellor and brought forward for proper parliamentary scrutiny. It is all very well having voluntary codes, but Parliament, which represents the people of this country, has absolutely no say in what goes into codes of that sort. Under my amendment, proceedings which cannot be the subject of a CFA under Section 58A(1) and (2) of the 1990 Act, which I refer to, are essentially criminal proceedings but they also include family proceedings for divorce, for adoption and for the welfare of children. Sometimes, large sums are at stake in divorce proceedings. That is not an appropriate area for litigation funding to intervene. My amendment also seeks to regulate funders by requiring them to obtain a licence from a designated licensing body so as not to be operating without any control.
	Some of your Lordships may have received a letter from an American association. It is not that it wishes to spread the American type of litigation into this country; rather, it wants to prevent it, because it can see from its own experience what problems it can give rise to.
	I concede that if in a commercial case a company wanted to give away a third or four-10ths of its damages to a funding firm of this sort, it could do so but, so far as other areas of the law are concerned, the barriers should remain up. I beg to move.

Lord Davies of Stamford: My Lords, I was not intending to intervene in this part of the debate, but I was absolutely fascinated by what the noble Lord, Lord Thomas, said. He has done a great service to the House and to the country by bringing forward this matter for parliamentary debate. I am going to disagree with what he actually said, but had he not taken the initiative, we would all have been the poorer. We would not have had to focus on this important subject in the way that we will now need to do.
	My concern is quite simple. We are in the process in this Bill of restricting access to legal aid. We thereby reduce the scope for businesses or individuals, whether in a tort action or some other kind of action, to pursue their civil rights in court. I take it for granted that an individual who does not qualify for legal aid but is at the other end of the income spectrum, where he or she can easily afford the costs of pursuing cases and the risks of potentially paying defendants' costs as well, will prefer to do that and would not want to go into any artificial risk-sharing arrangement with a third party or with lawyers by means of contingency fees or conditional fees. Those lucky enough to retain access to legal aid despite this Government's restrictions on its access, who are perhaps in the bottom 5 per cent of the population in terms of income or capital levels, and the top 5 per cent of the population who are rich enough to consider litigating and hiring solicitors and barristers will continue to have access to civil justice. But there is an enormous problem for the 90 per cent of the population who will be between those two extremes. We should be concerned about them.
	I know that lawyers always like to say that any individual who acts as a litigant in person is making a fundamental mistake-the old lawyers' joke is that such a person has a fool for a client-and one can understand why lawyers like to put that about. Those people who may feel confident in taking a case forward themselves would probably rightly prefer to do so rather than go into some sort of risk-sharing arrangement with somebody else. Any such risk-sharing or cost-sharing arrangements involve a potential conflict of interest.
	There is a conflict of interest in the case of hiring a lawyer on a conditional or contingency fee basis. Clearly, there may come a point when the lawyer himself does not think it worth pursuing the case because it is not a good risk from his point of view but his client wishes to continue to do so. There is that conflict, which the noble Lord, Lord Thomas, discussed with regard to other third-party funding in the case of classical contingent or conditional fee arrangements. But if we now say that such arrangements are not possible and we wish to make it a matter of law that certain types of third-party funding shall not be allowed, we further restrict access to justice.
	I put it to the noble Lord and to the House that cases where one is brain damaged, has had a bad accident or suffered medical negligence have great resonance with all of us because they are horrible situations for anyone to find themselves in. Like other noble Lords who have served in the House of Commons, I have come across many cases of that kind. Clearly, any arrangement under which somebody else has a share in any potential damages seems at first sight to be obnoxious. But if the alternative is that one cannot get justice at all because one does not fall into the bottom 5 per cent or the top 5 per cent of the population as I have described, we are in an even worse position.
	I accept that the amendment was conceived with the best possible motives and on the basis of considerable familiarity with civil justice, but the effect would be to exclude certain people from any chance of pursuing a case at all because they do not feel able to pursue the case as a litigant in person and they do not have the funds required to arrange a conventional civil action hiring lawyers in the classic fashion. Maybe no lawyer is willing to take them on on a contingency or conditional fee basis, because lawyers do not take a sufficiently optimistic view of the risks involved or the return involved in relation to the risk in particular case. However, some third-party entrepreneur or investor may be willing to do so. The noble Lord does not want to exclude such third-party funders in commercial cases, but he would exclude them in personal cases in a large number of circumstances. The House should think carefully before we exclude or shut off anybody from access to civil justice by any means. The important thing is that there should be full disclosure of the risks and full explanation by those who will undertake to invest in a case as to what the conditions are.
	It may well be that there will be points along the line at which there will be a difference between the investor and the litigant as to whether it is worth pursuing the case. That can arise in the case of a commercial third-party investor, or of a friend or family member who is prepared to support a friend or relation in a case. When it comes to the question of a settlement offer, they may take a different view. It is in the interest of everybody that there should be a clear contractual basis, agreed at the outset, as to what happens in those circumstances. I do not think we should exclude anyone from coming to an arrangement that happens, with full disclosure and understanding on both sides, maybe in less than desirable circumstances, to best meet the needs of the case.

Lord Boswell of Aynho: My Lords, I rise in support of my noble friend Lord Thomas of Gresford's amendment with considerable diffidence, as a layman tiptoeing for the first time into consideration of this legislation. As the noble Lord, Lord Davies of Stamford, has already reminded the Committee, the context is the further constriction of legal aid. I think the concern of all lay people, as well as practitioners, must be that this will in some way inhibit people's access to justice unless they fall within narrow categories.
	I do not wish to detain the Committee at length on personal cases, but I first had experience of this-as typically happens, by chance-in relation to a personal injury claim involving a member of my family, which took place in the 1970s. As it happened to take place on a British-registered ship, which was at that time within United States territorial waters, it gave rise to a certain interest in the forum. At that time there were no contingency fee arrangements at all within the United Kingdom. However, as it was possible to bring litigation within the United States, I was able to avail myself of such an arrangement. I will say no more about it other than that it did provide an opportunity that would otherwise not have been available to me.
	Nobody wishes to make it impossible for individuals to pursue their personal injury claims or indeed for small and medium-sized enterprises to have redress for their commercial disputes with large multinational or well-funded companies or bodies. However, it has become clear recently that third-party litigation funding was growing in potential and was a growing practice-and, potentially, a growing problem across virtually all developed countries, broadly simultaneously. I have sought to inquire further into this by means of Parliamentary Question. I go along with my noble friend who moved this amendment very much in the spirit of inquiry to try to focus on the issue and see that it is properly handled. However, I am a little less optimistic than the noble Lord, Lord Davies of Stamford, as to whether arrangements that are based on transparency and the market solution will in fact work to the wishes of the public at large.
	It seems that we need a fairly robust code. My noble friend has sketched such a code to manage this, with further details to be supplied in due course by the Lord Chancellor. Those who are practitioners in the field will accept that there has to be some boundary to it. My concerns are threefold. First-and my noble friend has already referred to this-the potential for conflicts of interest can be pretty explicit in the arrangements, where it may be in the interests of the funder to stop the case but not in the interests of the litigant. Secondly, there is the question of transparency. I do not spend my life reading court reports, but they have the names of counsel, the instructing solicitor and, obviously, the parties, so you do broadly know what is going on. However, in cases where people are operating behind that, with arrangements that are being concluded privately, it becomes less clear what is happening.
	Thirdly-and I confess considerable distaste for the potential here-one can imagine a situation where it is not merely a matter of somebody taking on a particular venture but where these claims are warehoused, securitised or packaged in a bundle and sold on to third parties who have no interest in the interests of the litigant and probably no knowledge of who they are. It might simply become a kind of impersonal transaction. I feel myself very uncomfortable with that. If I go no further than members of my family who, unlike myself, happen to be lawyers, there is a certain resonance-even if they are not specialists in this area-in the concepts of maintenance and champerty. Those are enshrined in our traditions for a very good reason. We do not want to have a purely commercial interface in these matters. On the other hand, we do not want to stop access to justice or stop perfectly reasonable and above-board arrangements by responsible people operating within a framework.
	I feel a welling-up of some disquiet in this area. I have a feeling that we need to set boundaries on it and a fear that there might be potential for some hard case or scandal that would excite public interest-and the public would then ask how we had slept on this. I look forward to the Minister's reassurance that the Government are on the case and that it will be sensibly-not restrictively but properly-regulated and observed.

Lord Mackay of Clashfern: My Lords, the introduction of conditional fees into our system was an innovation in the rules against maintenance and champerty. Therefore, this is an area with which, at least some time ago, I had a certain degree of familiarity. It carries with it the risks recognised in these prohibitions that went back to the very beginnings of the system of common law.
	When I sought to introduce the conditional fee, I tried to do it with a good deal of care as to the areas in which it would operate, as my noble friend Lord Thomas of Gresford reminded us. I was certainly of the view that it would be developed according to our experience of how it worked. On the whole it has worked in the sense in which I thought that it was likely to work when I proposed it. It was to deal with the area that the noble Lord mentioned of those who did not qualify for legal aid but were not sufficiently well resourced to undertake litigation on their own. It met quite a considerable degree of need in that area, and it has been allowed to develop.
	Of course, changes were made. When I introduced the conditional fee, I did so on the principle that the defendant had no real responsibility for the relationship between the claimant and his lawyer and therefore that the arrangement by means of a conditional fee should not affect the liability of the defendant. Those of your Lordships who are old enough to remember the presence of Lord Simon of Glaisdale in this House will remember that very often, when anything about legal aid came up, he dealt with the development under which, if a party had legal aid, the defendant would not be allowed to recover costs without leave of the court. The contribution of the claimant with legal aid to the defendant's costs was limited-often to zero. Lord Simon of Glaisdale thought that was completely unjust, and your Lordships may remember that it was not once that he said that. Ultimately, I began to understand the force of his argument. However, that remained the law on legal aid, and I suppose that it is still the law on legal aid.
	When I was introducing the conditional fee I did not feel that it was the same thing as a statutory provision for the claimant which was provided by legal aid. It was a private arrangement between the solicitor or the lawyers involved and the claimant, so I did not have any such effect. In due course, my successor introduced effects on the defendant of that particular relationship and the result was, as we know, a considerable escalation in the cost of litigation, which Lord Justice Jackson analysed in a report that cannot be criticised for its brevity. The consideration was very detailed indeed, but I think that in the end he came to the conclusion that the system as it originally operated was more just than the new system. I, of course, therefore support Lord Justice Jackson's conclusion in that regard.
	The noble Lord, Lord Bach, points out to me from time to time, when we have a chance to discuss this, that we are not just going back to my situation because legal aid was even more liberal in my time than it seems to be now. If this Bill is passed without any effect on the legal aid proposals, then it will continue to be so, but if the legal aid proposals are effected, there will probably be rather less legal aid than at the moment-certainly a good deal less than when I was dealing with these matters. To that extent it is a different situation, but from the point of view of the litigant in connection with conditional fees, what Lord Justice Jackson recommended was to go back to my system.
	That was, as I said, an innovation on the rules against maintenance and champerty because the lawyer was given an interest in the outcome of the litigation, which on a strict view of these rules might not have been allowed. However, statute was able to allow it and there was no further question about that. Third-party funding is a further development, which goes into the area where these dangers had been seen for many years. I therefore respectfully suggest to your Lordships that is an area in which a good deal of caution is required before we allow it. For example, in relation to the conditional fee we allowed it in certain areas but not in others. In particular, as my noble friend Lord Thomas reminded us, it was not allowed in the criminal area or in family law. If third-party funding is to become at all common in our courts, it needs to be subject to fairly careful control. Otherwise the dangers foreseen in the old law will occur.
	I cannot think of a better way of doing that than by giving the Lord Chancellor power to regulate the situation. He can, of course, from time to time, alter these regulations as he sees the practice developing. For example, if some unforeseen difficulty arises he could restrict further. If on the other hand it seems to be successful, he could open the scope further. I strongly support the principle of the amendment moved by my noble friend Lord Thomas of Gresford. The detail of it will require to be worked out-primarily by regulation, I should have thought-and the question is whether the scope of this amendment is adequate to give sufficient power to the Lord Chancellor to control all aspects of the matter.
	This seems to be a pretty thorough kind of amendment, but obviously I await the Minister's comments on the matter. That regulation is required seems absolutely clear. A voluntary code, particularly one that falls short of Lord Justice Jackson's recommendations on the matter, is not at all sufficient. This needs statutory control under regulation, particularly in relation to the costs that the third party will have to bear if the litigation is unsuccessful. For example, if the third party can get out of the contract before the case goes to full proof, is he thereby going to escape the costs of the litigation that he has taken responsibility for helping to start?
	There are difficult issues connected to this that are dangerous to the justice of the system that we all prize. It therefore seems very wise that the matter should be the subject of statutory control by regulation in the hands of the Lord Chancellor.

Lord Beecham: My Lords, this has been a short but interesting debate. I shall not detain the House long. I very much welcome the contributions by my noble friend Lord Davies, the noble Lord, Lord Boswell, and in particular the noble and learned Lord, Lord Mackay. I have some sympathy with my noble friend's approach; he sees in third-party funding arrangements an alternative source of funding for cases that might not otherwise be advanced because of other changes that are in hand. My problem with that is that in effect he is throwing a lifeline to the Government to pursue that very restriction, and that does not serve the cause of access to justice.
	The noble Lord, Lord Boswell, rightly drew attention to the concerns about this matter, and the remarks by the noble and learned Lord, Lord Mackay, clearly constitute a significant degree of support for the case advanced by the noble Lord, Lord Thomas. It is clear that we are potentially seeing a sea change in the way that some litigation will be funded in a way that runs contrary to the traditions of justice in this country. I note that the noble Lord, Lord Thomas, referred to hedge funds, and I think he is right; there is a danger here of legal hedge funds, as it were, being created and a secondary market developing, and who knows whence the funding of those organisations will derive? Experience in the United States is not encouraging, as the noble Lord, Lord Boswell, reminded us. I understand that in America, particularly in divorce cases, huge sums are in play.
	The noble Lord, Lord Thomas, has done the House a great service in identifying the issues here and in coming up with a viable framework that could be put in place in order to deal with the potential difficulties. I think that the view of the House, from those noble Lords who have spoken, is that a voluntary code simply will not suffice, however well intended the motivations of those who sought to produce one-and they clearly were well intended. There needs to be a more rigorous structure, and the reference by the noble and learned Lord, Lord Mackay, to the Lord Chancellor making regulations, coupled with the ideas set out in the noble Lord's amendment, offer a way forward.
	If at this stage the Minister cannot give a clear nod to the amendment, and I can understand if he cannot, then I hope at least that further discussions can be held on the matter and an agreed position put forward on Report. We do not want this genie getting out of the bottle, to which it could not be returned, by default. There are issues here of great significance and we hope the amendment will provide the basis for taking matters forward in a way that can be agreed across the House-I think there is a general interest across the House in this-to the advantage of litigants and the cause of justice itself.

Lord McNally: My Lords, in 1962-which is now, sadly, 50 years ago-part one of my degree course contained a subsidiary paper on English legal institutions. About the only thing I can remember from that course is the concept of champerty and maintenance. It therefore came as something of a shock to be told that it no longer applied, and indeed had not applied for some time.

Lord Bach: The Minister has been misleading us all along. He has played the role of a non-lawyer with immense skill during the debate. I have asked him many questions in our debates but now the truth is out-he is a lawyer.

Lord McNally: I have been trying to keep that quiet. The paper I mentioned was one of nine papers that I took in 1962 for my economics degree. The other day I found the statistics paper, which evidently I had passed. However, not only did I not know the answers to the questions, I could not understand the questions.

Lord Dubs: Nothing has changed.

Lord McNally: I think I had better get on to the brief.

Lord Beecham: Could the noble Lord offer his services to the Office for Budget Responsibility?

Lord McNally: My Lords, this has been an interesting and useful debate and I am grateful to my noble friend for outlining the matter with his usual thoroughness. Third-party litigation funding has developed and-to use the phrase deployed by the noble Lord, Lord Boswell-there is a welling up of disquiet about it. The noble Lord, Lord Davies of Stamford, takes what I would describe as the Robin Hood approach to this matter and views it rather optimistically as a way for the rich to help the poor. The noble Lord, Lord Boswell, was a little more sceptical about that scenario and drew on his American experience of how the process works. I think that people are a little worried when investors and investment opportunities are mentioned-the noble Lord, Lord Davies, mentioned that matter-when we are talking about the law.
	I was delighted to hear the noble and learned Lord, Lord Mackay of Clashfern, mention Lord Simon of Glaisdale, who I remember speaking from the Cross Benches. You used to see the colour draining from a Minister's face as he realised that Lord Simon of Glaisdale had thoroughly read and filleted the relevant Bill and knew exactly the contradiction in the government amendment that he was about to dissect. I experience that same feeling of foreboding whenever the noble and learned Lord, Lord Mackay, rises to speak. The noble and learned Lord said that Lord Justice Jackson could not be criticised for his brevity. All I can say to him is that Lord Justice Jackson is not alone among lawyers in that failing. I look at no one in this House in saying that.
	Like other noble Lords, however, I take on board the noble and learned Lord's point about the need to exercise caution in this matter. I think that the noble Lord, Lord Beecham, caught the mood of the House when he referred to the concept of legal hedge funds being established and cases being bundled up as investment opportunities as something that gives rise to rightful concern.
	The code of conduct was drawn up with the specific requirement that the matter would be revisited if and when third-party funding expanded. It is a question of whether it has now expanded to a point where the matter should be revisited. As the noble Lord, Lord Thomas, explained, the Civil Justice Council published a voluntary code of conduct for litigation funders on 23 November. It was drawn up with the co-operation of the Association of Litigation Funders.
	What I can say is that some serious points have been made during this debate, to which I have listened extremely carefully. My right honourable and learned friend the Lord Chancellor would like further time to reflect on these matters. They are serious, and some serious and worthwhile advice has been given. I see that the noble Lord, Lord Davies, is about to leap to his feet, and perhaps I may say that there was good and useful advice on both sides of the argument. I ask my noble friend to withdraw his amendment so that the Lord Chancellor can reflect on this issue. I shall not sit down if the noble Lord, Lord Davies, wishes to intervene.

Lord Davies of Stamford: The noble Lord is extremely kind. Does he agree that the best way of looking at this situation is to try to find the least undesirable possibility, or a less undesirable possibility, of a whole lot of very undesirable possibilities? Those are the only possibilities that exist. It would be lovely if legal aid was universally available for civil justice, and there were people in the 1940s who thought that that might happen. Sir Hartley Shawcross was saying at the time that he thought that legal aid could be turned into a kind of National Health Service equivalent for civil justice. We know that that is not financially conceivable.
	The Government are engaged in further cutting back access to legal aid. I disapprove of that because it is an undesirable objective. We introduced conditional fees. I remember having a conversation with the noble and learned Lord, Lord Mackay, after I introduced an access to civil justice Bill in the House of Commons. He asked me not to take it any further because he was thinking of introducing conditional fees as a government initiative. I agreed with that at the time. He said that the Bill had certain inadequacies and did not cover all cases. However, when we introduced contingency fees, a lot of perversities were attached. I concede that, at first sight, investment in a tort case just as a commercial transaction seems unedifying and unattractive. However, I put it to the noble Lord that all these solutions are undesirable. The most undesirable solution of all might be further to restrict access to civil justice for whole categories of potentially meritorious cases.

Lord McNally: My Lords, I am sure that that postscript will be studied by the Lord Chancellor, and he will carefully study this debate. As I was saying in my concluding remarks, I thank my noble friend Lord Thomas for introducing this subject and noble Lords for expressing a variety of views on it. The Lord Chancellor would like further time to reflect and I ask my noble friend to withdraw the amendment.

Lord Thomas of Gresford: My Lords, I am most grateful to all noble Lords who have spoken. I accept that the opposing view, put forward by the noble Lord, Lord Davies, was certainly an arguable one. I have not suggested that third-party funding should be banned but that it should be subject to statutory regulation, as opposed to the voluntary code.
	I could not help reflecting on my rugby days and the occasional game in which the leader of the forwards, an extremely formidable person, would observe the scrum-half dropping the ball and say to us in the pack, "Boys, they've had their chance. We're not going to give it to them again". Consequently, everything changed and we adopted a different tactic.
	Here, a voluntary code has been brought in. They have had their chance. In formulating the voluntary code, they did not include what Lord Justice Jackson rightly set out as the essential needs of such a code. They decided not to do that. When approached by the industry to say that they should limit themselves to commercial litigation, they decided not to do that. A two-page code has been produced of nine clauses which gives the broadest possibilities to the funders for the way in which they operate. I am not satisfied with that. I am most grateful to the noble and learned Lord, Lord, Lord Mackay, and the noble Lord, Lord Boswell, for their support. There is a perception of a genuine problem arising.
	I look forward to further discussion with my noble friend and, perhaps, the Lord Chancellor, and we will see whether we can take forward this matter for Report but, for the moment, I beg leave to withdraw the amendment.
	Amendment 163 withdrawn.
	Amendment 164
	 Moved by Lord Thomas of Gresford
	164: After Clause 53, insert the following new Clause-
	"Third party's insurance company
	(1) A third party's insurance company may not solicit a claimant who has a cause of action for personal injuries against its policy holder, to settle that cause of action where to the knowledge of the insurance company, the claimant is legally represented either under legal aid or a conditional fee agreement.
	(2) A third party's insurance company may not make an offer to settle in circumstances not prohibited by subsection (1), unless-
	(a) it has obtained adequate medical evidence of the personal injury and has disclosed it to the claimant; and
	(b) the claimant is advised when the offer is made of his right to obtain legal advice; and
	(c) the offer is in full and final settlement of the cause of action.
	(3) Any settlement made in breach of subsections (1) and (2) shall be void."

Lord Thomas of Gresford: I apologise for wearying your Lordships once more. The amendment would ban the practice of third-party capture life insurance companies. Third-party capture is something with which many people, including many insured people, will not be familiar, but I have heard about it. Frankly, it is a nefarious practice.
	The amendment would ban an insurance company-we are talking about banning in this amendment, not regulation-from directly contacting third parties who have been involved in accidents. That is currently commonplace behaviour following road traffic accidents. An accident happens, two drivers exchange with their details, driver A submits full details to his or her insurer and that insurer contacts driver B and offers an early settlement, usually at a much lower rate than would be achieved through due legal process. Insurers frequently make offers to accident victims that are far lower than the claim is worth, denying a person who has suffered an injury caused by someone else from the redress that they deserve. They frequently make settlement offers without proper medical examination to ascertain the full extent of the injury, again denying the accident victim real evidence-based representation.
	In this way, insurers seek to close off a claim without offering accident victims the opportunity to seek independent legal advice. There is obviously a conflict of interest. Insurers are acting both for the defendant, their policyholder, and the accident victim. Given that the insurers' primary objective is to minimise the level of payments, they have little interest in securing a fair deal for accident victims.
	There is another, equally unpleasant practice carried out by insurance companies where they contact a third party who has been injured in an accident with one of their policyholders and suggests that he or she makes a personal injury claim through their legal services arm. Other insurers simply refer the case details on, at a price-we will be dealing with referral fees shortly-to an independent personal injury lawyer. That is a major revenue stream for insurance companies, but it overrides common sense and is a substantial conflict of interest for insurers.
	Since I tabled the amendment, I have been approached by the Association of British Insurers. It has kindly sent me its code of practice. The ABI code of practice for third-party assistance occupies some 11 pages, unlike the two-page code I was referring to in the previous amendment, and presents advice for insurers on how to contact unrepresented claimants, what they are to say to them about the injuries that they have received, how they are to deal with the damage to their vehicles and how to hire other vehicles. A section headed "Managing the Relationship" says:
	"This section sets out how the insurer will manage the relationship with the unrepresented claimant where they have agreed on a provision of services, and covers where a claimant goes from unrepresented to represented".
	It sets out the policy, how to arrange medical treatment and so on. I suppose that in one way this could be said to be good practice. If the insurer is to be allowed to interfere with the other side in this way and to make offers of settlement, it is good practice to advise him to get a proper medical report and so on, as the ABI code says. However, there is absolutely nothing to enforce it. An insurer-and there are many insurance companies-may have a copy of the ABI code of practice but there is nothing to require him to adhere to what it says. Therefore, not only can the insurer ignore the provisions of his own code of practice but he can directly approach the other side. That is what my amendment seeks to prevent. I beg to move.

Lord Dubs: My Lords, I should like to speak to Amendment 164ZA in my name and give my support to Amendment 164, which has just been moved by the noble Lord, Lord Thomas of Gresford.
	The Bill contains a series of proposals that attempt to dent access to justice for people who have suffered harm. It reduces their damages quite dramatically by taking away the recoverability of success fees and "after the event" insurance premiums. The referral fee ban may go some way to curbing the abuses of some claims management companies, but it will also sweep up many organisations, including important victims' charities and membership organisations, that do a lot of good hard work in ensuring access to justice, and it will do nothing to curb some of the abuses that have inhibited access to justice.
	The noble Lord, Lord Thomas, referred to third-party capture. What is it and why is it so controversial? Perhaps I may quote from the Financial Services Authority's guidelines on third-party capture:
	"Third-party capture (or third-party assistance) is when an insurer deals directly with a person who has a potential claim against their policyholder, in order to investigate and settle the claim. Typically, an insurer offers a compensation payment to settle the claim directly to a third party, rather than settling through a legal representative for that party. This is mainly used for third-party motor claims. But sometimes it's used in other types of insurance, such as employers' liability.
	Concerns have been raised by industry bodies and consumer groups that this practice could mean third parties do not receive fair and reasonable treatment and compensation.
	The handling of all insurance claims by insurers-including third-party claims-is regulated under the Financial Services and Markets Act 2000. This means that an insurer's conduct towards third parties must comply with our Principles for Businesses and, where relevant, the claims handling rules in chapter eight of our new Insurance Conduct of Business Sourcebook ... Complying with our Principles for Businesses includes acting with integrity, due skill, care and diligence and observing proper standards of market conduct".
	The trouble is that that is not how it works in practice, as the noble Lord, Lord Thomas of Gresford, has clearly shown.
	The system is used by insurers, in their drive to maintain and increase profits, to collect premiums but reduce the amounts they pay out. In short, the insurers want to be their own judge and jury. The system should protect legitimate claimants who may have suffered great harm and be in great mental anguish and who are therefore susceptible to an approach that undermines their rights but ends the process quickly. They should receive what the law says they are entitled to, not what the insurance company says it is prepared to pay, and there is a big difference between the two. In the old days, it was not unusual for the same solicitor to represent both purchaser and vendor in a conveyancing transaction. Of course, there were clear conflicts of interest and major problems as a result. Thankfully, that practice no longer occurs.
	Third-party capture has the same risks to consumers attached to it. The insurer, who has a responsibility for paying out on a claim, also decides how much to pay, more often than not on the basis of no, or inadequate, medical evidence and without the claimant having the benefit of legal advice. There could not be a clearer conflict of interest between a big insurance company playing the numbers and an unrepresented, unadvised claimant, but the great irony is that insurers end up actively encouraging claims with the direct approach of offering to settle quickly without the purported inconvenience of a medical examination.
	A further irony is that the idea of putting forward a whiplash claim can be put in the mind of a claimant when they had not originally thought of claiming. Of course, the newspapers are full of such behaviour. The insurers are, in some respects, playing the numbers. They think that if they can buy off 10 whiplash cases for, say, £1,000 or so-even if some of them are, dare I say, fraudulent-it will cost them less than paying out the correct compensation to properly advised claimants on, say, four or five of them. That benefits insurers significantly. It can be no surprise that that has led to an increase in low-value whiplash claims and the undersettlement of more serious claims.
	The insurance industry and the personal injury industry have been playing games for too long at each other's expense. The result has been that genuine victims of harm lose out-and lose out significantly. Third-party capture is a damaging practice and I urge the Minister to accept either this amendment or the other one.

Lord Neill of Bladen: I support this amendment. The practice that it outlaws seems to be absolutely disgraceful, with an insurance company being paid by its own side-by the defendant-and then approaching the plaintiff to try to do a cheap deal with him for the benefit of the defendant. It seems to me that the conflict of interest is so gross that it ought not to be permitted at all. I am a little surprised by the words in the amendment, which mention knowing that the plaintiff is represented, because I am not quite sure how the amendment would cover a situation where the plaintiff had no representation. When thinking about how one would refine the language, I think one might consider taking out that qualification, because, with a general ban on this practice, your Lordships would simply agree with the amendment.

Lord Bach: My Lords, we welcome Amendment 164 in the name of the noble Lord, Lord Thomas of Gresford, and Amendment 164ZA in the name of my noble friend Lord Dubs. I also welcome the remarks of the noble Lord, Lord Neill of Bladen.
	Amendment 164 is really about motor insurance and motor accidents. All Members of the Committee will agree that motor insurance is a social good. It is unique among financial service products in that it is not just necessary but carries with it the coercive powers of the law. As we all know, failure to insure a motor vehicle is a criminal offence with a fixed penalty of having the vehicle wheel-clamped, impounded or destroyed or facing a court prosecution and the imposition of a maximum fine.
	That is all well and good and we all agree with that philosophy, but the private industry that delivers this social good is, as has already been said in this short debate, frankly deeply dysfunctional at present. That is perhaps an understatement. Its protagonist, the road traffic personal injuries sector, which comprises 75 per cent of all litigation, has developed deeply dysfunctional behaviours too. The arms race between road traffic personal injury lawyers and the insurance industry is completely dysfunctional.
	The Transport Select Committee in another place has studied this twice in the past year. My right honourable friend Jack Straw has led a campaign to fix these structural issues in a market that is very flawed. We have seen the rise of an industrialised road traffic accident personal injury market, aggressively marketed as though it were a consumer good and operated a bit like a sweatshop, with non-lawyers hired at cheap rates to process hundreds of thousands of claims a year. This number is still growing at a startling rate.
	Success fees, much criticised in our debates, are not to blame for the rise in the case load. We introduced an RTA portal that has operated for nearly two years. It compresses timelines, fixes costs and increases efficiency. It has done well. No less a figure than the Prime Minister commended it and wants to expand it to other areas of low-value claims. The portal has a maximum success fee of 12.5 per cent. The Association of British Insurers and Keogh and Co-well known lawyers in this field-told me and my colleagues in a recent meeting that ATE insurance is very low in this field: well below £100. However, the burden of litigation keeps increasing, despite the fact that the post-1999 regime of success fees and ATE simply does not exist in this area. Why does this happen? It is partly the result of decisions taken by the industries themselves, including the rise of aggressive marketing techniques, which we will debate shortly. The corollary to the personal injury market dysfunction has been the behaviour of the insurance industry itself, as the noble Lord, Lord Thomas of Gresford, said in his opening remarks.
	The issue gives rise to the claim, believed by 83.6 per cent of the population, that we live in a compensation culture, when all the reports that have been received, including that of the noble Lord, Lord Young of Graffham, suggest that this is more of a perception than a reality. It gives a bad name to other, legitimate claims. For example, 5 per cent of claims are employers' liability claims, often made by trade unions on behalf of their members. They get a bad name because they are meant to be part of a compensation culture, but they are not; for the most part they are legitimate claims. What are not legitimate are claims that are suggested, recommended and almost forced out of people who have been involved in road traffic accidents.
	The insurance industry and those who push claimants toward getting money are colluding-that is not too strong a word-in damaging each other. As the Transport Select Committee in another place found, by loading charges such as expensive car hire and body shop bills on to each other, they try to damage each other's profitability. This mutual sadism would seem almost economically rational if it did not seem so irrational in every other way. The incidence of third-party capture, which we are debating, has risen. It is a technique whereby insurers get referral data, cold-call often genuine victims and try to get them to settle early-and cheaply, as has been said. They claim that they are doing so to lock out personal injury lawyers, and certainly that is the effect. However, people who have been genuinely injured and deserve compensation are often attracted by the thought of a lump sum up-front without knowing their rights to full restitution.
	We need to address this all together. No doubt we agree on the basics. I hope that the Government are seriously thinking of putting down on Report the provisions of the Private Member's Bill that my right honourable friend Jack Straw MP introduced. If they do, I suspect that they will have not only our support but that of practically the full House. The insurance industry is trapped in practices that drive up premium costs. I commend the noble Lord, Lord Thomas of Gresford, and my noble friend Lord Dubs on tabling their amendments and starting the debate in this House. The matter was discussed in the other place-perhaps not as well as it should have been-and the discussion must continue. We look forward very much to the Minister's reply.

Lord McNally: My Lords, I thank my noble friend Lord Thomas and the noble Lord, Lord Dubs, for introducing the matter. I also thank the noble Lords, Lord Neill and Lord Bach, for their contributions. Part of the latter's contribution was a warm-up for the further debate that we will have on referral fees, and I will make two points about his comments. First, he said that the insurance industry was trapped in practices that drive up premiums. That would be fine if the insurance industry paid the penalty for that merry-go-round, but the reason that there is so much indignation is that the cost falls on the poor consumer. That is why there seems not to be much incentive in the industry to deal with this; companies casually pass on increased costs to the consumer, as we have seen with the escalation of insurance premiums in this area. Secondly, I join my right honourable friend the Prime Minister in praising the road traffic accident portal, which is working extremely well and we are actively looking at where else it could be applied.
	As my noble friend Lord Thomas and the noble Lord, Lord Dubs, explained, Amendments 164 and 164ZA would prohibit an insurer making an unsolicited approach to potential claimants in a personal injury case if the insurer was aware that the claimant had legal representation. The amendments also specify the requirements that must be met before an insurer may make an offer to settle such a claim where a claimant does not have, or is thought not to have, legal representation. This includes a requirement to obtain adequate medical evidence of the injury and to advise the claimant of their right to obtain full legal advice before accepting the offer, and to make it clear to the claimant that the offer to settle is full and final. In either of these cases, a failure on the part of the insurer to observe the provisions would render any settlement void.
	Third-party contact is the practice by insurers of making an early settlement offer to a claimant or third party where the insurer's policyholder is at fault in a car accident. The Financial Services Authority regulates the insurance industry and requires that insurers treat their customers fairly at all times. This would cover third-party claimants. I should explain that apparently the industry prefers the term "third-party contact" to "third-party capture". I will leave it to noble Lords to make their choice on that.

Lord Clinton-Davis: Speaking from years of experience in this field, I know that the term "full and final settlement" is often used by insurers at the very beginning of proceedings and negotiations, but I do not think that it is adhered to. It is often possible to obtain a better settlement, so the term is ignored.

Lord McNally: The noble Lord says he speaks from very long experience. As this Bill progresses, I have found that quite often noble Lords on all sides of the House who have more experience than me of the legal profession tell me that there is often a gap between what is written down and the reality of the day-to-day practice.
	Third-party contact does not, in itself, cause detriment to consumers and may be to their advantage as a claim can often be resolved quickly. In addition, this practice can allow insurers to reduce the legal costs associated with handling a claim, and this in turn reduces costs for all policyholders. However, I am aware of concerns around the potential risk of conflict of interest and the need for the claimant to have independent legal advice before any settlement is agreed. The FSA undertook a review of third-party contact during 2009-10 and did not find conclusive evidence that unrepresented third parties could have achieved higher compensation had they obtained independent legal representation.
	Following the FSA's review, which was referred to by the noble Lord, Lord Thomas, the Association of British Insurers published a code of practice, to which he referred, in June 2010. The code contains specific guidance for insurers on contacting claimants. This limits unsolicited contact. For example:
	"Insurers will not make unsolicited visits to an unrepresented claimant at their current address, including hospitals".
	I know we will be returning to some of this later. The code also requires that claimants are informed of their right to seek independent legal advice and of other options available to them to resolve their claim. As I have indicated, the practice was reviewed in 2009-10 but was not found, overall, to be disadvantageous to claimants.
	In summary, most of the issues that these amendments seek to address in respect of the handling of third-party contact claims are already covered by existing regulation. The FSA rules require that insurers fully inform third-party claimants of their legal rights, including to independent legal advice, and of alternatives to settling directly with the insurer. In the light of this, we do not believe it is necessary to go along the lines of the noble Lord's amendment, and I ask him to withdraw it.

Lord Thomas of Gresford: I am disappointed with that response. I do think it adequately addresses reality as it exists today in the approaches by insurers to accident victims.
	In answer to the noble Lord, Lord Neill of Bladen, subsection (1) of my amendment prohibits the third party's insurance company soliciting a claimant,
	"where to the knowledge of the insurance company, the claimant is legally represented".
	Subsection (2) refers to a situation where that is not the case: the claimant is not legally represented or the insurance company does not know that he is legally represented. It sets out three terms: that the offer to settle can be made only when the insurance company,
	"has obtained adequate medical evidence ... and has disclosed it to the claimant; and ... the claimant is advised when the offer is made of his right to obtain legal advice; and ... the offer is in full and final settlement of the cause of action".
	The sanction that I have quite deliberately put into this amendment is not that it is an offence or anything of that sort but that a settlement made in breach of those subsections shall be void, which means, in effect, that if a person has been bought off for a small sum, he can reopen the matter without any problems. He can go to a solicitor, get proper advice, get a proper medical report and come back. To my mind, that appears to be the right way forward.

Lord Neill of Bladen: Another sanction would be that if a settlement has been made, the money is irrecoverable. Under a void agreement, insurers might get their money back again, but you could have a provision expressly about "money paid by way of settlement", because a claimant may not find out until later that he has been swindled.

Lord Thomas of Gresford: I am very grateful to the noble Lord for that suggestion.
	This problem will become more and more obvious as time goes on. As I said, I am disappointed with my noble friend's reply, but for the moment, I beg leave to withdraw the amendment.
	Amendment 164 withdrawn.
	Amendment 164ZA not moved.
	Clause 54 : Rules against referral fees
	Amendment 164A
	 Moved by Lord Beecham
	164A: Clause 54, page 39, line 20, at end insert-
	"and in either case, the regulated person and the person by or to whom the business is referred, each act in the course of a business carried on for profit"

Lord Beecham: My Lords, the amendments in this group refer to referral fees. Recent years have seen an explosion of growth among what might best be described as parasitic commercial organisations-claims management companies and the like-seeking to obtain part of the financial stream that flows when litigation occurs by charging for the referral of clients to lawyers. Paradoxically, it might be thought, some of this is fuelled by the very insurance companies that complain about the compensation culture and the costs of litigation. Clause 54 very properly seeks to prohibit referral fees to and by regulated persons, who will include claims management companies, lawyers, insurers and perhaps others. Perhaps slightly counterintuitively, for the purposes of the legislation a referral fee need not take the form of a payment, but could, for example, be an offer by a lawyer to take on work at a reduced rate or for no fee. However, the potential for abuse of the system is apparent, and the Bill seeks to address it.
	The amendments tabled in my name and in the names of other noble Lords seek to improve the wording of the Bill. Perhaps I may briefly outline what they do. Amendment 164A would exempt not-for-profit organisations from the operation of the ban on referral fees. It would take them outside the category of regulated person for the purposes of the ban. Of course, there will be many membership organisations-charities, for example-that will come into that area. I understand that some charities refer people for legal and medical advice and any sums arising from those referrals go back into the work of the charity or the membership organisation. That seems a perfectly reasonable category to take out of the provisions of the Bill.
	Amendment 164B is a consequential amendment making it clear that regulated persons would be businesses carried on for profit. It is a corollary of Amendment 164A, as is Amendment 164C, which is another consequential amendment. More substantively, Amendment 166 provides:
	"A regulated person is not in breach of this section if ... that person is a solicitor; and ... the body to which the payment is made for the prescribed legal business is a registered charity that has been granted an exemption by the claims management regulation unit".
	Again, both the person making the payment-the solicitor-and the body receiving it-the charity-would be taken out of the scope of the provision.
	We support Amendment 166ZA, tabled by the noble Lord, Lord Pannick. The noble Lord will of course address this matter, but the thrust of the amendment seems to be to except from the ban a referral from one solicitor to another. This can easily arise in the course of practice where a case, either from the outset or it becomes apparent, is somewhat beyond the experience and expertise of a particular firm but a good deal of work may have been done on it and in any event it is not unreasonable for a referral fee to be paid.
	Perhaps more significant is Amendment 166ZB, in the names of the noble Lords, Lord Martin of Springburn and Lord Elystan-Morgan, and my noble friend Lord Collins of Highbury, which would take out of scope of the ban the relationship between trade unions and their members. I speak with long experience of these matters because I personally acted-the firm, for which I am now an unpaid consultant, continues to act- for a number of trade unions. The relationship there is not simply the passage of a name of a member but, as your Lordships will no doubt hear, one in which a good deal of administration is required and where the union is performing a service on the part of the member that will ultimately benefit the conduct of the case and therefore the solicitors involved in it. Again, it seems quite reasonable in that instance that a fee might become payable and it is unnecessary to bring that sort of relationship within scope.
	Finally, Amendments 169 to 171 to Clause 56 are connected amendments. Instead of allowing the Treasury to make regulations enabling the Financial Services Authority to monitor and enforce compliance, they make this an obligation. Amendment 169 substitutes "shall" for "may" and Amendment 170 requires rather than enables the FSA to take action. Similarly, under Amendment 171 it would become a requirement for the Treasury to make rules outlining circumstances where payments are not to be treated as a referral fee. This echoes the Lord Chancellor's powers proposed under Clause 55(8).
	None of this seeks in any way to detract from the thrust of the Bill's proposals but to tailor them to the realities of the issues that the Bill seeks to address and to make better sense of what is in principle a sound proposal that the Opposition support. Accordingly, I beg to move.

Lord Pannick: My Lords, Amendment 166ZA in this group is in my name. I am grateful to the noble Lord, Lord Beecham, for expressing support for it.
	The amendment would exempt solicitor-to-solicitor referral fees from statutory prohibition. I am puzzled as to why the Government think it is appropriate to impose a statutory prohibition on such referral fees. I am puzzled for two reasons. First, there is a public interest in solicitors having an incentive to transfer a case-with the consent of the client, of course-to another solicitor; for example, if the latter solicitor has greater expertise or if the former solicitor will not be able to deal with the case expeditiously. Secondly, any such referral fees from one solicitor to another are regulated by the SRA, which has ample powers to impose sanctions on either of the solicitors if there were any abuse of proper professional standards to the detriment of the consumer.
	I ask the Minister-and it is a genuine inquiry-why, in the light of these factors, it is necessary or appropriate to regulate referral fees paid directly from one solicitor to another.

Lord Clinton-Davis: Does the noble Lord agree that it is common practice for one solicitor to transfer a case to a solicitor in another part of the country? Speaking from personal experience, I quite often had to deal with cases in London that were transferred from the north of England because it was more convenient to deal with the insurers in that way.

Lord Pannick: Yes, I agree. Of course, the Bill will not in any way prohibit such transfers; it will prohibit only payment. However, prohibiting payment will deter what may be a very sensible economic arrangement that provides an incentive to the first solicitor to transfer to the second solicitor a case which the second solicitor can deal with far more efficiently-in the interests of the client; that is the point. As I say, all these matters are properly regulated by the SRA. If the SRA is not properly regulating it is not doing its job. I ask the Minister why and also whether there is any evidence that the SRA is not doing its job properly in regulating referral fees in relation to transfers between solicitors.

Lord Martin of Springburn: My Lords, Amendment 166ZB is in my name and those of the noble Lords, Lord Elystan-Morgan and Lord Collins of Highbury. Of course, I am supportive of the other amendments that have been moved and spoken to.
	I note that the other amendments mention payment to charities. When I signed up to the metal workers' union as a young apprentice, it was regulated under the Friendly Societies Act. It was the same as the insurance companies such as the Co-op, the Salvation Army or the Wesleyan-they were charities. The trade union movement has always had a tradition of not only looking at wages and conditions within the factory but trying to go beyond that to help the member and his family. It knew that there was no point in just fighting for wages and conditions alone; there were many problems outside the place of work. Often that meant that, particularly when workers were involved in an accident, the unions had to get in touch with a solicitor who was willing to help, particularly in the bad old days.
	Not so long ago in my native city of Glasgow, the Kelvingrove Art Gallery-which I would recommend anyone who visits Glasgow to go and see-had an exhibition of trade union banners. Trade union banners today tend to have big messages saying "Cameron out!"-and before that it was "Thatcher out!" or, even before that, "Heath out!"-but these old trade union banners were absolute works of art. They displayed exactly what the trade was all about. I remember the coach builders' banner; one of the members had had an accident in the street and you saw the accident-the poor man had broken his leg-and another part of the banner showed him in bed and the officers of the branch turning up, and the caption underneath was, "When I was ill, you visited me". My point is that there was always care within the trade union movement.
	I know that many people, particularly in the media, can point to the salaries of the trade union leaders and make negative comments about them. But it must be remembered that the vast majority of people working in trade unions do so on a voluntary basis without any financial help.
	As regards accidents in the workplace, some people would think that an engineering workshop is very dangerous but I know, through my work with the National Union of Public Employees, that a hospital kitchen can be a very dangerous place. A person can break a hand through a fall in a kitchen. Usually, the person who starts an inquiry is a shop steward who gets the information together. Then there is a visit from the full-time trade union officer who would need transport and an office from which to operate, with secretarial back-up, in order that the paperwork can be put together to send to the solicitor. It is only right and fitting to have a referral fee which can help with the ongoing costs of a trade union office. Again I go back to the point that most people think, when they join a trade union, that it is for wages and conditions, but this is another area of help that is given. There is a financial cost and it is right and fitting that the trade union should get a referral fee to offset those costs.

Lord Collins of Highbury: My Lords, I obviously have an interest in that I have put my name to Amendment 166ZB. First, I want to state clearly that, as a former full-time trade union official for what is now Unite, on this issue I have had its assistance and that of the solicitors with whom I worked over many years. I want to separate the principle of referral fees from what we have heard in terms of the scandalous behaviour of certain commercial operations, including insurance firms, in road traffic accidents. It is important to do that because, as I said at Second Reading, we are using a sledgehammer to crack a nut. I fear that a lot of deserving people will be adversely affected by these changes.
	The consequences will be devastating on working people and their unions. It is important that I set out-I am sorry if I take up a bit of time in doing so-precisely the sort of help and package that most unions offer to their membership. I also draw attention to the Prime Minister's remarks about the importance of the big society-that is, members helping themselves. We are talking about organisations of members for members who are, as the noble Lord, Lord Martin, said, regularly supporting their fellow members, very much in an unpaid capacity. No matter how much we have changed things, industrial accidents and diseases are still unfortunately far too common. We should be defending that principle of big society.
	As a senior officer in the Transport and General Workers' Union, I took considerable time in building a relationship with solicitors and in ensuring that we had a clear understanding about the sort of services that solicitors should provide to our members. Referral fees were not about extracting huge sums of money but about ensuring that we could build services for our members. More than 6 million people in the UK, and their families, can take advantage of those services. I was proud to build them.
	We talk about representation in personal injury cases but we also provide free wills and free telephone legal advice help. The services go beyond employment matters to consumer rights, neighbour disputes and a whole host of issues and services. There is free personal injury cover for members injured at work, including devastating industrial diseases caused by exposure to asbestos and other dangerous chemicals. We provide free personal injury cover for members' families if they are injured away from work, criminal law representation for work-related matters and criminal injury representation for members who are assaulted at work. As members of the Transport and General Workers' Union, that was quite a common occurrence for bus drivers and conductors. I know that we do not have too many conductors now but there is still a huge problem. We do not hear about these issues in the newspapers and we certainly have not heard enough about these issues in this debate.
	Representation, legal representation and relationships with solicitors are vital for working people. In an open and transparent way, referral fees have been used to build that relationship and to extend the services provided by specialist law firms. As I have said, that relationship is about building the quality of service. The union is able to monitor and regulate the relationship. Of course, unions are highly regulated and required to register all their finances and services with the certification officer.
	This relationship is also able to provide appropriate complaint procedures and mitigation. If there are failures on the part of the solicitor, the union is able to intervene, which takes the burden away from other agencies. It is important that we are able to continue to do that work. The last figures I was able to get hold of were for 2010, when, for example, Unite, UNISON and the GMB's legal services helped more than 25,000 members to win damages through industrial accidents and personal actions. That figure applies just to cases with damages and ignores the tens of thousands who got other services. When I left Unite, we had established the legal telephone helpline through the introduction of referral fees. Now, 25,000 people ring it every year for advice. I feel like ringing it at the moment because the draught coming through here is potentially hazardous to all our health. I will ring it when we have finished.

Noble Lords: Hear, hear.

Lord Collins of Highbury: I accept that there is no justification for excessive commercial referral fee arrangements, but we could establish criteria for these fees to ensure that they are reasonable in amount and provided wholly or mainly in services rather than in direct financial payments. We have talked about other organisations that are able to build legal services, and I am sure that other noble Lords will refer to campaigning and charitable organisations that rely on these services, particularly for work on industrial diseases. It may be an unintended consequence of this Bill, but that is why I want to stand up and be explicit about and proud of the sort of services that unions have been able to build up and give their members as a consequence of the arrangements they have made in an open and transparent way with solicitors.
	I return to the point I made about road traffic offences in my Second Reading speech: this is a sledgehammer to crack a nut. My noble friend referred to the RTA portal and those arrangements. I wish that the department would not only build on that success, but also examine its impact. Maybe it needs to be improved, but not by introducing a piece of legislation that is going to hurt. After all, the statistics speak for themselves. Figures collected by Datamonitor and the Compensation Recovery Unit reveal that between 2007 and 2011, motor claims increased by 43 per cent to 799,000, but employer liability claims were down by 6.6 per cent to just under 81,500. Are we dealing with like for like here? Let us address the road traffic accident issue-but why damage the interests of ordinary working people? They need their own organisations to defend them, with the support of professional solicitors who those organisations work with and regulate. I ask the Minister to see whether the Government can pay attention when considering these amendments and look at the specifics rather than let them be drowned in the road traffic accident problem, to which I know we have a solution, and on which we could do more.

Lord Alton of Liverpool: My Lords, claims management companies are sometimes described in more popular language as "claims farmers", and they are a real pest. Inasmuch as the Government are seeking to do something about the claims farmers, I am totally in support of them. However, I have added my name to Amendment 166 to which the noble Lord, Lord Beecham, has just spoken. As the noble Lord, Lord Collins, has rightly said, in these provisions are all the seeds of the law of unintended consequences. Just as the trade union organisations which do a superb job for some of their members will be caught by some of these provisions, so too will the campaigning charities, to which the noble Lord referred in his remarks. Amendment 166 suggests that a regulated person would not be in breach of the rules set out in Clause 54 if,
	"(b) the body to which the payment is made for the prescribed legal business is a registered charity that has been granted an exemption by the claims management regulation unit".
	As my noble friend Lord Pannick said a few moments ago, they have been doing a pretty good job up until now, so why do we not have confidence in the work they undertake?
	I want to return to an issue that I raised at an earlier sitting of the Committee: mesothelioma and asbestos victims. The example I want to give your Lordships is that of a charity that works specifically with the victims of asbestos exposure. I shall quote Mr John Flanagan, on behalf of the trustees of the Merseyside Asbestos Victim Support Group, who wrote to me to say that if the Bill goes through in its present form,
	"it will have catastrophic results for us if it goes through without amendment".
	For that reason, I hope that noble Lords and the Government will look favourably on the amendment tabled by the noble Lord, Lord Beecham. The Merseyside Asbestos Victim Support Group was formed in 1992 and became a registered charity in 1993. The founding members were ordinary working people who had been struck down with asbestos-related diseases of the sort I have described. They and their families felt that there was a lack of help and assistance for those suffering from asbestos-related diseases and that the only way to solve this was by creating their own support unit for people in the same situation as themselves. Given the emphasis the Government rightly place on voluntary endeavour, encouraging people to get engaged in the big society, I would have thought that they would thoroughly approve of a group like this, which is made up of people who are trying to help themselves.
	The work of the group is primarily that of visiting victims who have been diagnosed with an asbestos-related disease, including the terminal condition of mesothelioma. As I said during our last proceedings, the prognosis once the disease has been diagnosed normally means that the victim has nine months to live. Victims of asbestos in almost all cases have not contributed in any way to their condition and they were not informed of the associated dangers or presence of asbestos in their workplace by their former employers. The idea that such people could be vexatious litigants or that these are frivolous claims is patently absurd and I do not think that anyone would advance that in your Lordships' House.
	MAVS is supported by and works closely in association with local clinicians on Merseyside to provide a holistic support framework. It is an impressive community. Services are based locally and work is carried out with other voluntary organisations-at no cost to the patient or to the community. Clinicians give out leaflets to patients on diagnosis with the recommendation that they should contact the support group. Again, this is highly compatible with the plea that voluntary organisations should take up more of the burden. This is something that they are doing already, and yet they are going to be hit by the provisions in the Bill. A full range of advice and support is provided to patients and their families, including help with welfare benefits such as industrial injuries disablement benefit, pension credit, attendance allowance, disability living allowance and carer's allowance. They assist with the completion of complex application forms and offer practical help and support, providing assistance wherever it is needed. Sometimes victims and their families just need the support of a friend at the end of the telephone who understands what they are going through when times are really hard or challenging. They also provide details of legal advice experts, thereby preventing victims from falling into the hands of the claims management companies that the Government say quite properly that they want to deal with. Other asbestos victim support groups around the United Kingdom work tirelessly to provide the same services.
	The majority of the people who run MAVS are volunteers, just like those described by the noble Lord, Lord Collins, in the trade union movement. I might add that the volunteers include those who themselves have been diagnosed with asbestos-related diseases. The management body, the trustees, also includes patients diagnosed with an asbestos-related disease and family members whose loved ones have been lost through asbestos-related illnesses. The Merseyside group co-ordinates with the Cheshire Asbestos Victim Support Group to hold an annual Action Mesothelioma Day, which helps to bring about awareness among the general public of asbestos disease and serves as a memorial day to commemorate those who have died from this insidious disease. I gave the figures during our last proceedings, but I remind noble Lords that some 30,000 people have already died of this horrible malignant disease, and it is predicted that before the terrible legacy of industrial disinterest in the past ends, there will be another 60,000 fatalities. The day is also used to raise much-needed funds for the Mick Knighton Mesothelioma Research Fund and the June Hancock Mesothelioma Research Fund; both organisations are working to try to find a cure for the disease.
	The majority of the individual asbestos victims groups' charities within the United Kingdom attend the All-Party Parliamentary Group on Occupational Safety and Health's sub-group on asbestos, thus providing invaluable expertise and insight on this disease and the situation of those who have been affected. The Merseyside group also gives talks to the local community, including the Liverpool Community College's building and construction section, to warn and educate upcoming apprentices of the dangers of asbestos and how to deal with it when it is discovered in their workplace. The charity works on a global scale with organisations such as the International Ban Asbestos Secretariat, which works towards a global ban on the use of asbestos. This collaboration has already produced a ban on asbestos in many countries which took the lead from the European Union ban back in 1999.
	The charity was successful in obtaining lottery funding in 1997 for three years. It made a further bid for continued funding but was unsuccessful, being told that it was in the envious position of being able to attract donations from the legal sector for the work that it undertook. It set up financial arrangements under the solicitors' code of conduct with several asbestos-related disease specialist solicitors to ensure its continued funding and existence. It considered the term "referral fee" objectionable, as this funding from solicitors is in recognition of continuing work for and on behalf of victims and certainly not in the same context as payments made to claims farmers. This essential funding, together with donations from victims, is vital to its continuing existence.
	Inasmuch as the Bill will scrap referral fees, particularly those payments to claims farmers, it is to be commended. However, there is an irony in that CMCs will set up alternative business structures-so-called ABSs-to avoid their demise and that the hounding of the public will continue unabated. They will find a lacuna; they will find a way around, as those groups who are about just making money invariably do. The people whom the Government want to catch will escape, while those who have been performing this extraordinary public service out of an altruistic spirit will be caught. Genuine charities such as MAVS will have their funding from expert lawyers specialising in asbestos-related diseases cut altogether. If ever there was a case of throwing out the baby with the bathwater, this is surely it.
	The Government do not seem to realise the impact that the Bill will have if the amendment is not accepted. Terminally ill people do not have the energy to fight their own corner and are often beaten into psychological submission, especially when their mind is on what will happen to their family when they are no longer there. Surely it is the Government's responsibility to ensure that those least able to defend themselves are not treated as collateral damage in this Bill. That is why the amendment of the noble Lord, Lord Beecham, is so important. Let us remember those words from John Flanagan, who said that, if the Bill is enacted,
	"it will have catastrophic results for us if it goes through without amendment".
	That is an intolerable, unconscionable situation which I hope the Minister will take very seriously.

Lord Monks: My Lords, I support the amendments. I declare an interest as a non-executive director of Thompsons Solicitors, the largest company of trade union-related solicitors in the country. I am very pleased that noble Lords who have spoken before me have recognised the value and extent of trade union legal work-the noble Lord, Lord Collins, gave the figures. Looking at the government Benches just in the course of this debate, I have spotted distinguished barristers who have worked for trade union legal services and solicitors over the years. They include the noble and learned Lord, Lord Howe, the noble Lords, Lord Carlile, Lord Lester and Lord Hunt, who is with us at the moment, and the noble Lord, Lord Thomas. All of them have earned a few quid from the trade union movement in their time, looking after the interests of people who have hit hard times and need help.
	The Minister referred movingly on Monday to a family illness that developed from one of the old ICI works. In a way, unions' role in litigation is only a relatively small part of their work on health and safety; the majority of their work is preventive. If you go to anyone in the chemical industry in Britain today, where conditions have improved immeasurably since the days of ICI in the 1960s, they will pay full tribute to the role of the trade union movement.
	As others have said previously, the number of personal injury cases generally is falling, with the huge exception of road traffic accidents, where we know that something is going on that needs to be stopped, as my noble friend Lord Bach said earlier. Unions are getting a dirty name because some in the media, and perhaps in the Government, too, believe that unions should somehow be lumped together with the shroud-waving, ambulance-chasing, daytime TV-advertising groups of lawyers who go around inciting claims all over the place.
	The need to differentiate is clear. At the moment, we are not being differentiated in any way. We are losing on conditional fee agreements, on "after the event" insurance, on legal aid in tribunals and now on referral fees, which is the subject of this debate. These are all ways in which we are able to fund a substantial legal service and which will be much restricted if and when the Bill goes through in its present form. The different provisions impose major limitations on unions' ability to run effective legal services. At a time when legal aid is being cut, a double whammy is being inflicted on many working people and a great victory is being enjoyed by the insurance industry.
	Will the Minister and others in the Government give some recognition on Report to this imbalance? Not all aspects of trade union work are uncontroversial, but their legal services are widely appreciated and widely respected. They should be supported by the Government, not hit and curbed as they are in the Bill.

Lord Elystan-Morgan: My Lords, I join all those who have spoken in favour of the amendments, in particular Amendment 166ZB, to which I have appended my name with those of my noble friend Lord Martin and the noble Lord, Lord Collins.
	If one were to ask whether Britain is an overlitigious society, the answer would be yes and no. There are massive abuses that we are all aware of; there have always been abuses in the law. A small percentage-a minority, I like to think-of the profession to which I belong, and I have belonged to both sides of it, belongs to that class that Dr Johnson spoke about when he said:
	"The fell attorney prowls for prey".
	There have always been brethren who have been involved in that way, but they are, as I said, a very small minority.
	The Government are absolutely right to aim their weapon at such malpractices, but the weapon that they are aiming, it seems to me, is a blunderbuss with a very wide barrel, throwing a huge cloud of shot many yards wide that will hit many targets, some of them worthy and some of them not. My appeal to the Minister who will reply to this debate is not to express a Molotovian no to these appeals, which have been so sincerely and so solidly made. It would be utterly wrong to allow many worthy referral schemes to be destroyed wantonly just because the Government may not be sufficiently imaginative to look at each and every one of these situations separately.
	It was very proper of the noble Lord, Lord Collins, to remind the Committee of the primary origins of so many trade unions: friendly societies and societies of brethren, uniting in brotherhood to try to bring about a justice that society as a whole was not able to give them at that time. It is a very worthy history. Therefore on that basis, speaking with the experience of one who has been a solicitor, a barrister and for some 20 years a judge, I concur completely with everything that I have heard. These are deserving cases and it would be wrong, unjust and utterly unworthy of the Government to lump them all together and treat them as if they were pariahs to be attacked in this way.

Lord McNally: My Lords, we have heard some powerful speeches about the good work of trade unions and charities, but that is not what this debate is about; it is about the ban on referral fees. In their reports, both Lord Justice Jackson and the noble Lord, Lord Young of Graffham, supported the ban on referral fees. The Government believe that the current arrangements under which lawyers and others are able to pay and receive fees for referring personal injury claims have led to higher costs and the growth of an industry that pursues claims for profit.
	Lord Justice Jackson recommended that referral fees should be banned as part of his comprehensive package of recommendations to make the costs of civil litigation more proportionate. The prohibition will be enforced by the appropriate regulators, for example the Solicitors Regulation Authority for the Law Society, the Bar Council, the Financial Services Authority or the claims management regulator. The regulators will also be responsible for taking appropriate action against "regulated persons" for any breaches. The Government believe that requiring regulators to enforce the ban is the most effective and proportionate response.
	The noble Lord, Lord Alton, made a powerful case, as he did the other night, for help for those suffering from exposure to asbestos, but I do not believe that he should then link that deep concern to one form of fundraising for charity. Indeed, it is debatable whether it is any healthier for a charity than any other body to have such a dependency relationship with lawyers who are supposed to be providing a professional service, so we are not convinced that any exemption should be made for charities.

Lord Alton of Liverpool: My Lords, if there is a depletion of funds of charities such as the one that I described today, are the Government saying that if those charities cannot raise that through voluntary endeavour and voluntary giving, the Government themselves will fill their coffers?

Lord McNally: No, of course the Government cannot do that. There was one thing that I was interested in. I do not know this because it is always dangerous to think aloud at the Dispatch Box, but on the powerful case for aid for charity I do not see why wealthy solicitors' firms or wealthy solicitors could not make donations to that charity as long as there was no link with the search for work. It is worrying to have a charity that is dependent on making referral fees to certain solicitors. I am more comfortable with our banning referral fees.
	In a way, the same applies to what has been said about trade unions. I fully accept the point made by the noble Lords, Lord Collins and Lord Martin, about the services that trade unions offer working people in this country. My father worked for 47 years for ICI and was a lifetime member of the National Union of General and Municipal Workers. When I hear attacks on health and safety, I know the importance of health and safety in industry, but that should not be linked to a relationship with a professional service organisation.

Lord Martin of Springburn: I may have failed to declare an interest in that I am a member of Unite. It used to be the metalworkers' union and then it became another union. When I looked today, it was still called Unite, but it might change its name tomorrow.

Lord McNally: It might. Some of them sound like coffee bars rather than trade unions these days, but perhaps that is part of the marketing. Certainly, the case of the trade unions was made very strongly by those who intervened. The service that trade unions provide their members no one gainsays-it is important-but we do not believe that that link between referrals and certain legal firms should be exempted from a general ban on referral fees. There must be those who have worked for trade unions who do not pay referral fees. I do not know. As a layman, I see referral fees as a distortion of the market, but there is nothing to stop trade unions having a good close working relationship with particular law firms. Some have had long-standing relationships. However, I cannot tell the House that we are willing to make an exception.
	The noble Lords, Lord Pannick and Lord Clinton-Davis, referred to the payments by solicitors to other solicitors for the transfer of prescribed legal business, and we believe that that argument is rational and sensible. If for any reason a solicitor decides that a piece of business needs to be transferred, perhaps for the geographical reason that the noble Lord, Lord Clinton-Davis, gave or because the solicitor realises that it is beyond the competence of his or her firm, it would be perfectly reasonable to see a transfer. When the transfer is made, the solicitor concerned is able to claim an appropriate amount of money for the work dispersed before the transfer was made. We accept that logic. However the Government's view is that reasonable payments of this type are not captured by the ban as long as they only cover the work undertaken by a firm in respect of the claim prior to it being transferred to a new firm. If there is a referral fee element to the payment, this would be subject to the referral fee prohibition and is a matter best dealt with by the regulator rather than by legislation.
	Although I know that parts of this reply will disappoint noble Lords, we appreciate the widespread support for our ban on referral fees. We believe that this is the best way to lead our proposal to provide the most effective and proportionate way of preventing payment for personal injury claims and squeezing a bad practice out of the industry. We therefore invite noble Lords not to press their amendments.

Lord Beecham: My Lords, the noble Lord, Lord Hunt, has signified his support for the Government, but he is the only member of your Lordships' House who has done so in respect of these amendments. We have had some powerful speeches from a variety of people with an interest in and experience of litigation of this kind: distinguished lawyers such as the noble Lords, Lord Pannick and Lord Elystan-Morgan; people with direct experience of the shop floor, such as the noble Lord, Lord Martin; people with a lifetime in the trade union movement, assisting members and no doubt helping them to make their legitimate claims for compensation and advice, such as the noble Lords, Lord Collins and Lord Monks; and the noble Lord, Lord Alton, with his extensive experience of the voluntary sector. They have all made a very clear case for exempting trade unions and charities from the restrictions of this Bill.
	We agree that there is a problem with the referral of claims and the industry that has grown up around them. That is commercial exploitation, which may well lead to expectations being aroused and cases perhaps being brought that should not be brought. That is why we support the thrust of the Government's proposals. However, the Government and the noble Lord appear to be comfortable with third-party funding of litigation-subject, as we have heard and discussed in a previous debate, to possible regulation-but not at all comfortable with an arrangement by trade unions or charities for a referral fee for passing instructions, and no doubt assistance as well, to solicitors that they are recommending on behalf of their members. There is an element of quality assurance in that too. I do not understand, in this context, what the evil is that the Government's proposals on referral fees are supposed to be curing. Who loses by the process that is being advocated in these amendments by those who support them? Where is the loss? There is no loss to the public purse, the insurance industry or defendants. There is no loser. It is not at all analogous to the commercial exploitation about which we spoke.
	This curious matter, to which I referred in moving the amendments in the first place and which I will take a little further now, arises under Clause 54(8) of the Bill, which provides that:
	"Payment includes any form of consideration (but does not include the provision of hospitality that is reasonable in the circumstances)".
	You can take somebody for a drink but you cannot provide any other service. Page 47 of the Explanatory Notes says:
	"Subsection (8) provides that a referral fee can be any form of consideration (which would include, for example, an offer by a solicitor to take on other work at a reduced rate or for no payment at all), other than normal hospitality".
	As part of my firm's relationships with trade union clients, I used to offer a free will to a client for whom we acted after being referred to us by a trade union. We would offer free initial advice about other matters not connected with their personal injury claim, such as a matrimonial, employment or even a criminal matter. All of that would be caught by the Bill as it stands and as set out in these explanatory notes.
	Perhaps I am being naive, but I cannot believe that the Government really intended those consequences, even though they appear to flow from the Bill as drafted. It means that the expectation that has developed over many years between trade unions and their solicitors-and I dare say the same applies to charities and the solicitors that they recommend as well-that a service would be offered, either free or at a lower charge than might otherwise have been the case because of that connection, would be prohibited by law. That would be the consequence of this Bill. I do not know whether the noble Lord has addressed his mind to that. I would not be surprised if it has not occurred to him, given all the other matters he has to address. However, I would urge him to look again at that aspect even if he is reluctant to look at the other aspects, to which we will undoubtedly have to return on Report. What is being suggested here is a gross interference with a relationship of many years' standing, covering both the categories of organisation we have talked about. With all respect to the Minister, I do not understand-

Lord Thomas of Gresford: My Lords, before the noble Lord does what he is going to do with his amendment, I just make one comment. He said that the Minister was on his own. When I was a young solicitor, I would have given my eye teeth to secure some union work. I did some at the Bar, but it was very difficult in a small firm to compete with a large firm, as I am sure the noble Lord will agree. If I thought I had to pay money to the union to get their work, that would have made it considerably worse. The money that is paid to the union by the lawyer is ultimately reflected in the hourly rate that the lawyer charges to his client-it eventually falls on the client, or on another client. It is not just disappearing or being absorbed by the large firm.

Lord Beecham: Not all firms are large firms, and it will not surprise Members to know that my firm was not-and is not-a large one. However, we have had that kind of relationship. The profitability of firms conducting litigation of this kind is not high in any event, even without the question of referrals. I do not think that there are the kind of consequences that the noble Lord assumes to be the case. Equally, organisations with members seeking to derive the best service that they can for their members ought to be free to do that. I repeat that I do not think this Bill is at all on the right lines in what it is seeking to do. I again respectfully direct the Minister's attention to the peculiar circumstances that subsection (8) proposes.
	I was going to finish by commending again the amendment tabled by the noble Lord, Lord Pannick, about solicitor-to-solicitor arrangements. He made a very strong case there, and I regret that the Minister seems to have just dismissed it out of hand. Certainly-

Lord McNally: I ask the noble Lord to read Hansard tomorrow. We have made it extremely clear that we do not think that the kind of relationship outlined by the noble Lord, Lord Pannick, will be caught by this ban. It will be regulated by the Solicitors Regulation Authority, and I hope my statement from the Dispatch Box will give it some help in carrying out that duty. The Government do not believe that that kind of relationship, where a solicitor transfers business and takes a reasonable charge for the work already done, is covered by this ban.

Lord Beecham: I do not think it is necessary to confine the payment to precisely the basis that the noble Lord identifies.

Lord Phillips of Sudbury: In the new, highly commercial context within which soliciting is carried on today, and in an era when we have these alternative business structures where we can be owned by virtually anybody, does the noble Lord not think that there is a real risk that some of these new ABSs will, as a matter of business, solicit work if they can then pass it on subject to a substantial referral fee? I can see that in the offing.

Lord Beecham: I can see a case for regulating the fees. I am not an enthusiast for alternative business structures as the noble Lord has defined them. But in any event, we are not discussing soliciting as such-despite the noble Lord's use of the phrase. We are talking ultimately about a system that has been used successfully from the point of view of trade unions, charities and their members, as well as the professions, for some time. The Bill is seeking to intervene because of a different set of circumstances and set of relationships, with different causes and consequences. If there is no movement on this we will have clearly have to return to the matter on Report. In the mean time, I beg leave to withdraw the amendment.
	Amendment 164A withdrawn.
	Amendments 164B and 164C not moved.
	Amendment 165
	 Moved by Lord Clement-Jones
	165: Clause 54, page 39, line 24, at end insert ", or
	(c) arranges for another person to provide, for a fee, marketing services by unsolicited SMS text message, unsolicited telephone calls or any marketing in a hospital or other primary treatment centre."

Lord Clement-Jones: My Lords, in moving Amendment 165, I shall speak to Amendments 167 and 168. We are still on Clauses 54 and 55, but we are dealing under these amendments with a rather different set of considerations. Both my noble friend the Minister and the noble Lord, Lord Bach, have mentioned the report from the noble Lord, Lord Young of Graffham, Common Sense, Common Safety. He was explicit in stating:
	"The problem of the compensation culture prevalent in society today is, however, one of perception rather than reality".
	I suspect that a major reason for the public's perception that a compensation culture exists has been driven by the actions of ambulance-chasing claims management companies. The existence of referral fees is another major cause of that perception. I very much support the Government's attempt to solve the problem with Part 2 of the Bill, but legislation designed to end their influence must be watertight. In recent years, it is clear that there have been differing views on how to achieve this. Insurers allege that referral fees are directly responsible for the enormous increase in motor insurance premiums; others allege that insurers themselves have profited from receipt of referral fees for several years by selling details of their customers to panel solicitors or claims management companies. As we have heard from a number of noble Lords, Lord Justice Jackson in his review of legal costs, which reported in 2010, recommended that referral fees in personal injury cases should be banned. Others, however, such as the Association of Personal Injury Lawyers, fear that a ban will simply drive fears underground.
	The insurance industry does not agree that transparency is sufficient and has welcomed the proposed ban. So too has the Law Society, of which I am a member, but it wants it extended beyond personal injury cases. Others, such as the right honourable Jack Straw, want to go further and make it a criminal offence-not just a matter of regulation-to solicit, offer or pay referral fees in road traffic accident claims. He proposed an amendment to the Bill to that effect last November. The Justice Select Committee, under the chairmanship of my right honourable friend Sir Alan Beith, believe that it should be punishable with a custodial sentence. This has been rightly resisted by the Government on the basis that circumstances could be very varied and complex and best dealt with by the regulator. I believe that the current provision strikes the right balance.
	There are a number of issues, however, that arise in the course of consideration of the ban. First, the Legal Services Board highlighted the difficulty of defining referral fees. The Motor Accident Solicitors Society, in its evidence to the Transport Select Committee, highlighted the importance of a definition being wide enough to cover all potential commission fees, administrative costs, transfers and any other payments that may be disguised.
	Secondly, the purpose of a ban on referral fees is to reduce insurance premiums in future. But how is that to be judged? The benefits derived from a ban may not necessarily be passed on to consumers. Indeed the impact assessment of the proposed ban admits that, overall, claimants might lose out from a ban on referral fees on personal injury cases, with individuals expected to be affected more than business. However, lawyers are apparently likely to incur no net additional costs.
	Thirdly, are any other sectors in contemplation that could be activated by Clause 54(4)(b)? Last October, the House of Commons Justice Committee, to which I referred earlier, called for that ban to be extended for other types of case. My right honourable friend Sir Alan Beith, chair of the committee, said that it was "disappointing" that the Government had chosen to limit its enforcement capacity for the most serious cases of abuse of personal information. He added:
	"It is likely that Ministers will have to return both to this issue and to the issue of referral fees in areas other than personal injury, where they are taking welcome action".
	It is important, however, that the ban extends to the full range of malpractices. They include nuisance marketing in personal injury, specifically advertising in hospitals, cold calling and spam texts; third-party capture, which was debated earlier; financial incentives to claim; selling of contact and case details of personal injury victims without their consent; auctioning claims to the highest bidder; and marketing that is not accompanied by a service to filter out spurious claims. This is the reason for Amendment 165. The amendment would ban nuisance marketing, which fuels perceptions of a compensation culture and impacts on the ability of genuine accident victims to obtain redress. It would have the benefit of driving the really unscrupulous operators out of the market.
	Health Minister Mr Simon Burns recently told English NHS hospitals that it was not acceptable to display adverts for law firms that encouraged no-win no-fee compensation claims. Surely, however, any conflict with the Compensation Act 2006, which allows businesses to operate in NHS trusts with the approval of the facility's management, must be resolved through primary legislation.
	However, there must be clear exceptions. National Accident Helpline exists as a national brand for the marketing activities of more than 100 leading solicitors' firms around the country. They have told us that this scale of marketing allows tens of thousands of people who would otherwise find it very difficult to access legal support to obtain legal representation and pursue legitimate claims, and that they-the NAH-strictly filter those who respond to marketing. Every year, it tells more than 150,000 people who contact it that they do not have a claim. The NAH contends that if such legitimate marketing, already regulated by the ASA and others, were to be banned, thousands of genuine accident victims would be left without legal representation. That is the reason for Amendment 167.
	The ban on purely commercial referral fees must exclude provision of legitimate marketing services that enable innocent injury victims easily to access the requisite legal representation. The ban should also exclude other services under a scheme, such as sales, marketing, product development, vetting of clients, upholding solicitor standards and debt control. Amendment 168 would remove Clause 55(9), which is potentially very damaging to the ability of accident victims to obtain high-quality legal representation.
	Some believe that the ban could also be read as banning or capping the legitimate costs of genuine, high-value services. These include the provision of necessary medical reports for clients, quality assurance for solicitor firms, sales and product development. To ban or limit those commercial activities would drastically restrict the ability of legal firms to offer the best advice to genuine claimants. My noble friend the Minister will, I hope, be able to give assurances that any cap excludes these legitimate services such as I have mentioned. I beg to move.

Lord Hunt of Wirral: My Lords, I shall speak to Amendments 166A and 166B, standing in my name on the Marshalled List, and to declare my interest as a partner for 44 years in the international commercial legal firm DAC Beachcroft LLP, and the other interests contained in the register.
	This gives me an opportunity to respond to one or two comments in the earlier debate. In this important group of amendments we need to focus on the underlying problem of legal costs as much as on the problem of referral fees. As my noble friend Lord Clement-Jones just reminded us, the Government are implementing another of the main recommendations of Lord Justice Jackson's review of civil litigation costs. Perhaps I should mention here my personal pride that one of my partners, Andrew Parker, was an assessor to Lord Justice Jackson's review.
	The intention so clearly expressed is firmly to reduce disproportionate legal costs in our system. As I was able to say on Second Reading, and I make no apologies for repeating it, Sir Rupert Jackson was able to produce a report which balanced all the special pleading of the various vested interests and came up with recommendations which were firmly in the public interest. It is that balance which we have to keep in view throughout the passage of the Bill in this House, particularly on these clauses.
	I fully support the Government's proposal to ban referral fees, and these amendments in my name are intended simply to clear up some points of relatively fine detail in the drafting because any ban implemented must work effectively and not allow easy ways around the ban. We are already aware that there is quite an industry out there now, which will be thinking of innovative ways of defeating the intention of both the Government and Lord Justice Jackson.
	Amendment 166A makes a minor change to Clause 54(4)(a) by inserting,
	"which consist of or include damages",
	so that the paragraph would be:
	"the legal services relate to a claim or potential claim for damages which consist of or include damages for personal injuries or death".
	The point is that many injury claims include claims for other items such as motor repairs or hire charges. In my view, the current wording imposes the ban on payments for only the injury element, so we could get the unfortunate situation where the same referral fee is instead paid for the repair or hire claim, neatly sidestepping the Government's intentions. Better surely to pick up the whole of any claim where there is an injury element, as my wording is intended to do.
	Amendment 166B inserts,
	"whether received by the person referring prescribed legal business or not",
	into Clause 54(8). I fear there is a gap in the drafting which will be exploited by those business models in which the referral is made by a regulated person, but the payment for that referral is made back to an unregulated subsidiary. This amendment is intended to stop that. I understand entirely that the payment for that referral could be banned, but it is vital in my view that where both payment and receipt can be caught, that should be done. It is not just about balance or fairness, but about removing the incentives from the system. Speaking for one moment about incentives, this is as much about legal costs as about the rather distasteful practice of buying and selling people's injuries as some sort of commodity. Essentially the payment of referral fees demonstrates that, despite efforts to contain legal costs in low-value claims, solicitors acting for claimants can still afford to pay out over half their fees to a third party whose only role is to buy and sell on the details of an injured person.
	I shall remind the Committee of some figures. This is not just about motor claims, but they illustrate the point clearly. We now have a system in which a solicitor can conduct a routine motor claim for personal injury, in which liability is not disputed, and be paid £1,200 profit costs by the defendant or the defendant's insurer. We hear that out of that sum of £1,200, many solicitors are apparently content to pay up to £850 to a middleman-namely, a claims farmer. What do the claims farmers then go out and do? They go and pester more people to bring claims to them, so that they can farm more lots at £850 a time. This is what is driving the compensation culture today, in which it is now becoming evident that we have the weakest necks in Europe. It is not just about whiplash and road accidents; this is a real issue for those businesses and households struggling to pay insurance bills.
	In conclusion, what this demonstrates beyond any reasonable doubt is that the claimants' solicitors are being paid too much. In debates on this Bill in the House of Commons the Minister, Mr Djanogly, committed to consult on reducing that £1,200 fee but was unable then to give any commitment about timing or about the critical question of how much the reduction ought to be. The Government have also previously made it clear that they intend to extend the reduced fixed fees into employers' liability and public liability claims. I look forward to hearing my noble friend the Minister clarify the Government's intentions and I hope that we will hear about plans for such extension, which is sorely needed to contain costs for business, for hospitals and for other public authorities, et cetera.
	Only by removing the cost from the system can the Government achieve their objective of bringing down insurance premiums. Any ban will immediately be the subject of attempts to work around it, however watertight the drafting. The key to making Clauses 54 to 58 work is not just to get the drafting right, but to remove the incentive for referral and profit share by removing the excess from the system. While I am of course merely speaking to my amendments, I urge noble Lords to join me in calling for an £850 reduction to the fixed fees, because that would stop at source this practice of trading people's claims.

Lord Carlile of Berriew: My Lords, I want to say a few words in support of these clauses and indeed of all the amendments that my noble friends have spoken to. One of the most unwelcome trends in litigation in recent years has been its commoditisation, and if this is not stopped I see the development of litigation futures as a commodity that will be traded, just like potato futures and metal futures.
	I do not know whether any of your Lordships has had an experience like mine a few months ago. I was involved in a road traffic accident as a rear-seat passenger in a vehicle on a country road in Northern Ireland at about 11 o'clock one morning. I came back by air to Heathrow the same afternoon. I had not been injured in the accident, although it was quite unpleasant. As I was standing on the Heathrow Express platform, coming back into central London, I received a text message from a claims-farming business that referred to the accident I had had the same morning. Now if it happened to me, it must be happening to an awful lot of other people. I suggest that Amendment 165 nails this problem for that kind of activity. That kind of low-level claims farming, but on a very large scale, is putting up insurance premiums and the cost of litigation. Perhaps worst of all, it is encouraging people to make claims that they otherwise would not have made, and which may in the end cost them if not money, a great deal of anxiety.

Lord Thomas of Gresford: Does my noble friend not agree that in the instance that he described and in which he was involved there could have been an element of corruption with people being paid when they gave information about that accident?

Lord Carlile of Berriew: There is certainly that possibility.
	I wanted to add something else about hospitals. When I was a Member of another place, I often visited a celebrated orthopaedic hospital in the next county. At that time-I cannot say whether it is the case now-at the end of a long corridor in that hospital there was a solicitor's office. That was an unusual arrangement but one that no doubt brought some rent to the hospital. I have real reservations about that kind of arrangement. I am all in favour of general advertising and it is right that solicitors' firms should be able to advertise in local and national newspapers so that people are aware of the kinds of specialist services that they provide. But we must take this opportunity to reject anything that smacks of ambulance-chasing.

Lord Bach: My Lords, the Committee seems to be at one in its attitude towards the amendments, and I include those of the noble Lord, Lord Hunt, as well as those in the name of the noble Lord, Lord Clement-Jones, who has spoken so persuasively. I hope that we are as one and that that includes the Minister. The amendments really cannot be argued against.
	I intend to be pretty short in what I have to say as there is other business waiting to get on and we have had a long session today, but I have to say to the noble Lord, Lord Hunt, who talked about the Jackson report, that it is wrong to ally the Jackson conclusions with the conclusion that the Government have reached on his report. Lord Justice Jackson's balance obviously appeals to the noble Lord and no doubt to many others, but it did not appeal to the Government, who have picked and mixed from Lord Justice Jackson's findings.
	In particular-I am afraid that I have used this example before and no doubt I will use it again-Lord Justice Jackson could not have been clearer that he did not believe that civil aid should be cut further, particularly with regard to clinical negligence. Indeed, when the Government decided that that was exactly what they were going to do, Lord Justice Jackson made his now quite famous Cambridge speech, which attacked-if that is the right word; a better word might be "criticised"-the Government for the stance that they have taken. So there is a difference between what Lord Justice Jackson said in his report and how the Government have responded. I am not saying that any other Government would have taken everything that Lord Justice Jackson said, although of course he saw it as a package. But I am saying that in this instance there is a difference.
	On the question of claims management cases, I shall briefly mention that my right honourable friend Jack Straw, whose name has come up already in discussions today, gave the example in another place of a friend of his who, just like the noble Lord, Lord Carlile, was bombarded with texts and personal calls from claims management firms following a minor accident in which he suffered no injury. In that case, apparently, the details had been sold to the claims management firms by his own insurance company. I just wonder whether that might have been a possibility in the noble Lord's case, although it may be that his insurance company did not know about the accident. Actually, there is no reason why it should have known as he suffered no injury and he was a back-seat passenger. It is interesting to consider exactly how the company found out in the time that it took for him to get back to Heathrow, but the point that he makes is clear.
	Unsolicited spam, which we are talking about here too, is incredibly intrusive. Worse than that, it must be appalling to have a minor prang and find people trying to prey on you for, effectively, a quick buck. This is a real problem.
	It is not as though whiplash does not exist; it does. There are genuine cases and it can cause real pain, discomfort and disruption in people's lives. However, when ordinary people are encouraged or persuaded to exaggerate their symptoms, knowing that it is difficult for a doctor to diagnose the degree of impairment in a particular case, that is when the problem really shows itself. We support the amendments and hope that the Government can indicate today their intention to bring forward amendments on Report in these or similar terms.
	Once again, I put to the Minister a question that-inadvertently, I am sure-he failed to answer on an earlier amendment but which is relevant now. Do the Government intend to move on Report the contents of the Private Member's Bill that my right honourable friend Jack Straw moved in another place?

Lord McNally: My Lords, if I am wrong I will write to the noble Lord, but I do not think it is our intention to move that Bill on Report.
	On the noble Lord's final remarks about whiplash, my advisers' hearts will sink but they knew this was coming at some point in this debate. I had personal experience of a minor bump, which at the time was settled by my saying, "Send me the bill and I'll pay for it". This somehow escalated over the next few weeks into a case handled by a solicitor's firm 200 miles from where the accident happened, with a doctor's verification of whiplash made in Manchester, 180 miles from where the accident happened. Worst of all, when I wrote to the insurance company and said, "This is a scam and a fraud, and we're willing to give all kinds of evidence that it is", I got a letter back saying that they would settle for £5,000. Presumably the doctor, the solicitor and the injured party with his whiplash all got a cut, but who paid for it? Not the insurance company but the payers of insurance-the customers.
	A number of similar stories have been told around the House; there have been two or three today. To my mind this is rampant corruption, not just an abuse. Whether or not there actually is a compensation culture, the behaviour of these companies feeds the perception that there is because so many of our citizens have experience of this. That is reinforced by these companies' adverts, which I asked Questions about over 10 years ago when I first came into the House. I had been off with a dose of flu and that was the first time I had been exposed to daytime television and advert after advert that looked almost like a lottery win, showing someone with a big cheque that they had won for some minor injury. That is where the idea of the compensation culture came from.
	This has been a good debate. I say to my noble friend Lord Clement-Jones that the Government have sympathy with the intention behind Amendment 165. Unsolicited calls about personal injury are a nuisance at best, and at worst create precisely the impression of a compensation culture to which he referred. However, there is existing legislation on unsolicited calls. We will need to consider whether further legislation is needed and, if so, whether this is the right way forward, but the Government will consider the amendment further.
	The intention behind Amendments 166A and 166B seems to be to make the ban more effective and harder to evade. The Government believe that the referral fee clauses as drafted should cover the concerns that the amendments seek to address, although of course we wish to ensure that the ban is as effective as possible. I therefore thank my noble friend Lord Hunt of Wirral for raising these two issues. We are sympathetic to the intention behind them and would like to consider them further. I am afraid that I cannot give him a more specific timeline about those considerations, but we take due note of the points that he made.
	In response to Amendments 167 and 168 to Clause 55, I assure noble Lords that Clause 55 requires regulators to have arrangements in place to monitor and enforce the prohibition on the payment or receipt of referral fees. Under this clause, any payment can be treated as a referral fee unless the solicitor or other party can show that the payment was for the provision of a particular service. However, I noted my noble friend's points on that. It will be up to the regulators to define that issue in a way that does not prohibit legitimate activity. However, the amendments tabled by my noble friends would alter the way in which legitimate payments for services are defined. Amendment 167 to Clause 55 would ensure that pooled marketing would be a service exempted from the ban. Amendment 168 would remove the Lord Chancellor's powers to make regulations specifying the maximum amount that can be paid for those services.
	Under our provisions, it will be for the relevant regulators to enforce the ban on referral fees and impose appropriate sanctions. The regulator will also have the power to require the regulated persons to show that payments for "marketing" do not include a referral fee-that is, that any marketing costs are reasonable and appropriate. The pooling of marketing resources-my noble friend Lord Clement-Jones referred to this-in our view does not in itself breach the prohibition on referral fees. However, it is important to understand that any potential breach will depend on how the information provided by the claimant is passed on by the organisation that holds it to the solicitor who takes on the claimant's case.
	The Government believe that the appropriate regulators are best placed to monitor and assess payments made in these circumstances, particularly in taking a view as to whether a breach has occurred. That said, the Lord Chancellor's powers to make regulations are essential if the prohibition on referral fees is to be effective. The Government need to be able to respond to situations as they arise. I believe that these amendments are unnecessary and would serve only to hinder the Government and the appropriate regulators in enforcing the referral fee ban. In addition, the likely effect would be to encourage inflated marketing costs in order to get around the ban on referral fees. I therefore invite my noble friends not to press their amendments.
	I am sorry to have delayed noble Lords who are due to speak in the pensions debate, which is the next business. If they can get the Chamber warmed up while we are away, we will be eternally grateful.

Lord Clement-Jones: My Lords, I thank the Minister for that reply. Apart from the metaphorical slap on the wrist at the end of his response, it was generally helpful. I thank those who have spoken to the amendments. The noble Lord, Lord Hunt, made some interesting contributions and it is good to hear that the Minister is looking favourably on those amendments. The phrase about removing the excess from the system is very powerful. My noble friend talked about commoditisation and the possibility of litigation futures. The lawyers are probably salivating at that prospect. A number of noble Lords have recounted their experiences in this area. I will not add to the list of those who have spoken on that. However, I have even received a text message when I have not had an accident, which just shows the assiduity with which these characters operate.
	I enjoyed hearing the noble Lord, Lord Bach, going well off piste when discussing the Jackson report in responding to my humble reference to a single aspect of that report, which was then inflated into a general reference to the whole of the Jackson report.

Lord Bach: I say with the greatest respect to the noble Lord that of course I remember his comment on Lord Justice Jackson's report, but in this instance I was referring to what the noble Lord, Lord Hunt, said about that report.

Lord Clement-Jones: It is very useful to explain it in that way.
	I thank the Minister particularly for his sympathy for Amendment 165. I very much hope that he will carry that forward to Report. Having looked at the existing legislation, I think it would be extremely useful to signpost that measure explicitly in this legislation. I also thank him for his assurance about pooled marketing and legitimate activities on the part of those pooled marketing schemes. They perform a very useful service and it would be a retrograde step if they were not able to continue. I will read with great care what the Minister said about Clause 55(9). I beg leave to withdraw the amendment.
	Amendment 165 withdrawn.
	Amendments 166 to 166B not moved.
	Clause 54 agreed.
	Clause 55 : Effect of the rules against referral fees
	Amendments 167 and 168 not moved.
	Clause 55 agreed.
	Clause 56 : Regulation by the FSA
	Amendments 169 to 171 not moved.
	Clause 56 agreed.
	Clauses 57 and 58 agreed.
	House resumed. Committee to begin again not before 8.56 pm.

Pensions: Occupational Pensions
	 — 
	Question for Short Debate

Lord McFall of Alcluith: To ask Her Majesty's Government what steps they are taking to reinvigorate occupational pensions.

Lord Shutt of Greetland: My Lords, before the debate is introduced, I hope I may make the normal point that it is a timed debate. Apart from the mover and the responder, other noble Lords are limited to six minutes. The monitor is dark now but when it shows six, the six minutes are up.

Lord McFall of Alcluith: My Lords, I am delighted to introduce this debate on occupational pensions. Last year I was asked by the National Association of Pension Funds to set up a working party looking at occupational pensions. When the report was published, I mentioned that a golden sunset of pensions was giving way to a bleak dawn. Many millions of people will face poverty in retirement-some absolute poverty. That is the inauspicious background to this debate. People are saving less and less and there is less and less trust in the pensions system. In fact, the NAPF confidence index is presently at minus six-the lowest it has ever been since its inception.
	I want to look at the issue of risk. The flight from defined benefit to defined contribution schemes means that all the risk is on the saver. In effect, the saver is often left to navigate through a pensions minefield which would puzzle the brain of Albert Einstein. The consumer is short-changed and the voice of that consumer is missing. We need to ensure that that voice and that presence is centre stage in pension provision. In the flight from defined benefits to defined contributions, it strikes me that it is not just the risk which has shifted from the employer to the employee but that the onus is on the employee-the individual-to make critical decisions about their pension which they are ill equipped to do. It is a fiendishly complex matter and they need help and reassurance from scheme trustees who promote good governance. We need good, strong, independent governance. That is central to good member outcomes. We can achieve that good governance only if we have an environment which is conducive to achieving that, and if we have proper structures. We need schemes which are of a sufficient size to enable them to reap the benefits of scale and produce low charges to ensure that we get good governance and high-quality communication.
	At present, there are 54,000 separate DC schemes operated by tiny employers in this country. With the average worker now changing job 11 times, we see the proliferation of these tiny pension pots with no portability. These have two critical disadvantages. First, they lack the scale efficiencies of larger ones and have inadequate governance, and, secondly, they tend to deliver worse outcomes at higher costs. There are no compensating benefits whatever.
	The Pensions Minister, Steve Webb, has put out a challenge on red tape, as he calls it. That is a welcome opportunity to reinvigorate the pensions landscape, not just by eliminating regulation but by ensuring that we have better and more appropriate regulation. The environment for employers should be one whereby they offer decent workplace pensions with a minimum fuss, while ensuring that members' benefits are protected. A key area for government consideration is over the risk-sharing between employer and employee. The Government need to ensure that employers who want to assume some risk are incentivised to do so. The questions that need consideration are: how should the Government support and reinvigorate multiemployer wide schemes? In what ways can they fiscally encourage employers and reward them for taking on some of the risks?
	The third aspect is auto-enrolment and NEST. This is welcome because it has the potential to encourage between 5 million and 9 million people to save for retirement in addition to those who have not saved previously-largely those on a low income. First, the Government have to look at the state offering and establish a firm foundation for saving. It will not be worth while for people to save if that firm foundation is not in place. Secondly, I have a simple message for the Government: remove the shackles from NEST. Take the messages that its chief executive Tim Jones and chairman Lawrence Churchill gave to the DWP Select Committee a few months ago. The cap and transfer-in rule are preventing the best outcome for institutional savers and government. The rule stops consolidation of existing pension provision for employers into NEST, and the cap ensures that employers have to run more than one scheme-one for the lower paid and another for higher earners-if they choose NEST.
	Lawrence Churchill's remarks to the committee were telling. He said that 40 per cent of the lower paid are engaged by large employers, so already 40 per cent of those whom he called "our market" will not use NEST because of the restrictions. By impeding the volume of business for longer, the Government's loan will take longer to be repaid. It is therefore wise for the Government to remove that contribution cap. By doing so, NEST would need £100 million less in taxpayers' money. It should be remembered that the shackles were imposed because of a 2005 political settlement. Removing the restrictions would ensure efficient organisation, and auto-enrolment would incentivise industry to lower costs and charges.
	On the issue of costs and charges, disclosure is inconsistent among schemes and providers. In fact, what is consistent is the opacity of disclosure. We need transparency on the cash impact on pension pots. I welcome the code of conduct that NAPF has established as a result of my committee's proposals. Let us keep in mind that a 2 per cent fee over the lifetime of a pension, which is not out of line, swallows up 50 per cent of an individual's pension pot. My message to the Government is: do not wait and see the impact on high charges; use regulatory powers to apply stakeholder charge-capped schemes that are eligible for auto-enrolment.
	The UK has the largest annuities market globally-450,000 were purchased in 2009 with a total value of £11 billion, and that will increase in the years ahead. Research since 1957 indicates that for each year of life expectancy, annuity rates have fallen by 0.56 percentage points. What does that translate into? An individual with a £100,000 pension pot in 1957 could have secured a pension of £11,000. In 2009, a similar pot could have secured a pension of £6,200 and, in 2010, £5,200. As the Minister knows, the rates offered can also vary by more than 25 per cent for a similar individual and annuity type. Shopping around should therefore be the default position, and there is a long way to go in that area. The reason that it should be the default position is that it would allow more flexibility for the changing spending patterns in old age.
	The issue of Europe has been brought to me through lobbying. Lobbying by companies is very relevant because of the negotiations on Solvency II. The Government have to be vigilant here because if we do not get the right outcome, we will see the death of defined benefit schemes in the United Kingdom.
	Lastly, on stability, the pensions cycle is between 40 and 50 years. The political cycle is between four and five years. We are out of sync. Since 1996, there have been more than 800 changes to pensions legislation and regulation-the equivalent of one change per week. I say to the Minister that that does not add stability. What we need to do is think about taking the politics out of pensions. A standing advisory body on, say, longevity and state pension ages, would be a good start, but we need a pension policy that is stable, for the long term and based on political consensus. I therefore suggested in our report, and suggest again to the Minister, that an independent standing commission on pensions should be established to ensure that the interests of the saver are centre-stage for the long term. If we work together in harmony on these proposals, perhaps we can assist in averting a bleak dawn for pensioners in the future.

Lord Freeman: My Lords, I congratulate the noble Lord, Lord McFall, on securing this debate on a very important subject. I am bound to say that I agree with a great deal of what he has said, not only in the past but to your Lordships tonight. There is a wealth of experience from those who are to contribute to this debate. I see in his place the author of a very important report on the pensions industry, and we look forward to hearing the noble Lord, Lord Hutton.
	My contribution comes from my experience as chairman of a very large pension fund, as referred to in the register. Although I speak for myself and not for my fellow trustees, my experience obviously comes from my business background and from looking at the impact of the problems of our pension fund, and indeed of other pension funds in the private sector, on the well-being of British industry.
	The position is serious. The latest estimate of the actuarial deficit of British pension funds is of the order of £750 billion. It has got a lot worse in the past three to four months. For funds with an actuarial valuation date of 31 December, the position is that the stock market has fallen since the middle of the year, and due to quantitative easing, the yields on gilts and more generally have increased the liabilities because the discounting factor is much less than it would have been in the past. It is a very serious position for British industry.
	As the noble Lord, Lord McFall, said, defined benefit schemes have been closed at an increasing rate. In the FTSE 100, not a single defined benefit scheme is open to future members-they are closed to new members. However, the deficits remain. The schemes may not be taking on new members but the historical legacy of the pension funds and the benefits-very generous benefits, in certain circumstances-have contributed to the serious deficits. I will quote only one example-not a FTSE 100 company. I believe that the Royal Mail is still in a 25-year recovery period to pay off the existing deficit. The introduction of mandatory indexing of the pensions of those still left in defined benefit schemes is understandable, but I should point out, as the Minister well knows, that indexing is capped in only one country-in Holland. That, of course, assists the viability of an existing pension fund.
	From my personal experience I would like to congratulate the diligence, efficiency and helpfulness of the regulator, who has to look after the Pension Protection Fund. He is looking over his shoulder to make sure that not too many burdens are placed on that fund. However, the regulator's willingness to consider longer recovery periods, and his understanding of the current problems of some pension funds, is to be applauded.
	I have two concerns and will put two points to the Minister. If he does not have time to answer them in his winding-up speech, perhaps he will be kind enough to write to me. First, I echo what the noble Lord, Lord McFall, touched on: we need to increase the awareness of employees of the likely shortfall of proper provision in retirement. We need an awareness campaign, which I think only the Government, the Department for Work and Pensions, can lead. Clearly the regulator cannot do it alone. We need to appreciate that if you have a personal pension plan in addition to your defined benefit or defined contribution scheme, that may not provide enough in later life. For example, if in addition to your scheme, you save £100,000 over a lifetime of working, when it comes to drawing a pension, that may mean only £3,000 per annum. That gives you an example of what meagre addition might be entailed. We need an awareness campaign and, perhaps, even to relax the draw-down provisions in legislation to permit people to draw more money.
	Finally-this is a rather radical proposal-we need to revisit trustee governance. That is an immensely complicated subject: the provision of pension funds and the advice that is given. In my experience, even with the training now provided in many pension funds for their trustees, it is becoming too complicated and we may need a new model, which is to permit trusts to wholly contract out advice. I look forward to hearing the contributions of more experienced Members than I around your Lordships' House.

Lord Hutton of Furness: My Lords, probably for as long as most of us in this House can remember, successive Governments in the United Kingdom have been wrestling with three unpalatable facts about occupational pensions. First, fewer and fewer people are saving for their retirement. When they are saving, they are almost certainly not saving enough to cover the extra years for which we are living. For perfectly good and understandable reasons, the previous Labour Government, of whom I was proud to be a member, introduced a series of reforms to the state basic pension which have served to make the system much more complicated and reliant on means-tested benefits. The consequence is that we might have done some damage to the principle of personal responsibility for saving.
	So we have three very difficult problems to wrestle with. I endorse all the comments and concerns of my noble friend Lord McFall and many of those introduced to our debate by the noble Lord, Lord Freeman. If those are the three problems that we are wrestling with, I am glad to say that successive Governments have found within themselves the ability to reach a reasonable consensus about how we deal with them. The noble Lord, Lord Turner, did the country a huge favour in 2005 with his report which the previous Government took forward and the current Government are now taking forward in a sensible fashion.
	My advice to the Minister is not to tinker with the framework. That has been one of the enduring problems with pension law and pension law reform; we have never allowed the dust to settle on any of the reforms that we have introduced. That has created the problem that both noble Lords have referred to: the lack of confidence and trust in our pensions saving system.
	It is too early to judge whether these reforms are likely to be as successful as we all in this House and outside want them to be. We are heading for a very difficult place. It cannot be right that the price that our society pays for increasing longevity-rising life expectancy, which is a great prize in our community-is increasing levels of intolerable poverty among that rapidly growing age group. We have it in our grasp, with the reforms that the noble Lord, Lord Turner, outlined a few years ago, to prevent that outcome, but we have to guard against the law of unintended consequences. It was perfectly right to set the contribution levels for NEST as they were. It is a very big change for many employers, particularly smaller employers, now to have to make pension contributions, and we must guard against the consequences in our labour market of going too far and too fast. I think that we all understand that. We must be mindful that NEST, although a step in the right direction, could have negative consequences for existing saving products, particularly in the defined contribution sector.
	There is a way out of this conundrum. Living longer does not have to mean the end of the world as we know it. On occupational pensions, I think that we have a reasonable direction of travel. I support what Ministers are trying to do with the state pension, which is to make it more generous and more universally available to get us out of this very difficult space we are in with the current means-tested rules around pension credit. If we can find a way to ensure that there is a decent platform on which people can save without worrying about whether it is in their interests or not to save-whether any of those extra savings will be clawed back through lost pension credit and so on-we will have done the country a big favour. We will have reinforced the principle of personal responsibility for saving, with which we must not interfere or blur. If we do that, we will leave future generations with bills that I very much doubt that they will be able to pay.
	Both noble Lords have basically raised all the points that I wanted to raise. That will not stop me from raising them in my own terms. We face two fundamental problems right now, given that, sadly, defined benefit schemes in the private sector are now clearly on the way out and are not coming back. That is a consequence of a number of factors of which we in this place and elsewhere will be very well aware. It means that defined contribution schemes will have to do most of the heavy lifting when it comes to breaking through into the sunnier uplands where more people are saving more for their retirement, allowing those savings to stretch for the extra years for which we know that people are living. We have to find a way through that.
	The Pensions Regulator issued an important consultation document last year about reform of regulation for DC schemes. Like other noble Lords, I hope, I look forward to the outcome of the consultation. The regulator has identified many of the important issues to do with improvements in governance and oversight in DC schemes, which will not go away. We have to find a better way through to ensure that DC schemes produce better results for those who are saving in them than they are currently. I am not saying that regulation is the only way through; we must be mindful of the consequences of overregulation, but the Pensions Regulator has identified issues which, I hope, will result in more concrete proposals.
	The second issue, which is of much greater concern, is what Europe is planning to do on defined benefit schemes. It is impossible to exaggerate-although we all exaggerate as a profession, as politicians-the danger that lurks behind the proposals from the European Commission. They would mean the end of defined benefit in the private sector. I want defined benefit schemes to continue in the public sector, and I believe that there is a way to do that, provided that reforms are made, but we should not sit back and welcome the demise of DB in the private sector, because that is what will happen if we move to Basel III-type insolvency regulatory frameworks for DB. That is the wrong regulatory tool. I understand why the European Commission wants to guard against the dangers and hazards, but good intentions do not always make good regulation. The Government are right to resist those proposals very strongly, because they would be a step backwards.

Lord Stoneham of Droxford: My Lords, I am pleased to take part in the debate initiated by the noble Lord, Lord McFall, whose work on the Workplace Retirement Income Commission was timely. I thank him for his immensely valuable input to this debate. I agree with pretty much everything that has been said by the previous speakers. That underlines that real progress on pensions comes when there is genuine cross-party co-operation. The work of the Pensions Commission and actions initiated by the previous Labour Government and now taken on by the coalition, are the ones that will have lasting value.
	I hope that this generation, benefiting from the last of the direct benefit pensions, will help prepare the next generation for the pension problems that they will have. Clearly, over the next five years we will have to concentrate on the introduction of auto-enrolment and NEST to attract the 6 million to 8 million people whom we want to bring into pension coverage. I think that it was the noble Lord, Lord Hutton, who said that stability is now absolutely essential. The one opportunity that this big change will give is that it will raise the profile of pensions and the need for us to make the case for people to save for them. It is important that we concentrate on doing this well, but there remain a number of ongoing problems that we need to look at for the future.
	The pensions system remains incredibly complex with the two-tier state pension and all the constraints and conditions of auto-enrolment-the phasing in and the exclusions. Initially these will not help; they will confuse people, and we are going to have to work very hard to explain them. I hope that the Government will progress with their proposal for a single higher-rate basic pension, not least because 9 million to 10 million people will miss out on auto-enrolment. There has to be a greater understanding of the need for people to provide more for their retirement. We must plan ahead for the review of auto-enrolment in order to simplify it once it has settled in-removing the caps, looking at the thresholds and easing the transfers into NEST.
	One fundamental problem with the system that we are going into is that the contributions are simply too low to provide adequate pensions for people entering retirement. We will soon have to examine ways of gradually raising, through phased increases, an auto-escalation of the contribution rates. We cannot do this initially but it will be important for the future.
	Another problem is that we are introducing this at a very bad time. The impact of the recession, all the changes associated with student loans and the ability to raise the deposit for a house will all delay saving for retirement and make it much more difficult for people to prepare for their retirement. As a result, we are going to require far greater experimentation and flexibility in relation to savings vehicles to encourage flexible saving to support pension provision.
	Governance and risk in occupational pensions is one area that we will need to look at very carefully. We can argue about what has caused the death of the defined pension scheme but the consequence is that it has weakened, and will continue to weaken, employer interest in pension provision. It is already having the effect of weakening contributions. I suspect that it is going to weaken interest in the governance of defined contribution schemes, and there is going to be less joint employer/employee interest in these schemes. Employers will be outsourcing it, if they can.
	It will be very important for the Government to do everything they can to encourage experimentation with pension schemes. The end of the defined benefit scheme has meant that we have become very polarised: now, the employer is not prepared to take any risk and has handed it all to the employee. In some respects, that polarisation has gone too far. We need to move back to a middle way of experimentation where there is a sharing of risk in pensions.
	The role of employers remains terribly important in pensions. Certainly, they have to provide a countervailing power if we want to get competitive rates for annuities, if we want to get the general level of charges down and if we want to take advantage of the benefits of scale in pensions. The role and interest of employers in the management of pensions is absolutely essential. We must not downgrade the importance of the employer.
	Finally, there is the outstanding issue of tax incentives. I am sure that there will be an ongoing debate about reducing the inequities of the current tax incentives, which see the majority of the £28 billion of tax relief going largely to higher earners. There is an inequity here which certainly Liberal Democrats have been committed to ending. Some of this money could be better used in attracting more lower earners to the idea of starting the habit of saving for retirement, as well as paying for the higher state pension.

Baroness Drake: My Lords, my first involvement with NEST is a matter of record. I thank my noble friend Lord McFall for securing this debate and I give recognition to his work on pensions.
	Active membership of workplace pension schemes is now at its lowest level since the 1950s. Although I am relieved that the revised timetable for auto-enrolment has been published, I desperately hope that there will be no further delay. In fact, I plead with the Government that there should be no further delay.
	For workers to persist in saving for their pension, they have to have trust and confidence. Auto-enrolment will mean that millions of workers begin saving through the capital markets, and the fiduciary duties and behaviour of those managing their assets are going to be of great importance. Trustees have a duty to act in the best and sole interests of the beneficiaries, but the auto-enrolled world coincides with an increasing move to contract-based provision, where fiduciary duty, managing conflicts of interest and governance standards are more ambiguous. To quote the Secretary of State, Vince Cable, in the foreword to A Long-Term Focus for Corporate Britain, returns can be,
	"captured by a small number of intermediaries at the expense of the many who provide the capital".'
	A powerful, much needed benefit of establishing NEST as a not-for-profit trust is that it has already started to drive up standards in the industry. Otto Thoresen, the director-general of the ABI, recently acknowledged at the Work and Pensions Select Committee the role of NEST in driving a higher standard of behaviour in the market. Downward pressure on charges and upward pressure on standards of governance-these are the early impacts that NEST is having.
	No one who has seen NEST's approach to governance or investment strategy can doubt the absolute focus on delivering a product for ordinary people. It has transformed thinking around the design of default funds. However, NEST's influence on the market has to be strong and sustained over a long time. The product restrictions on NEST, the transfer ban and the charges cap must not be allowed to undermine that influence as the 2012 pensions market, with extensive contract provision, starts to take shape.
	The potential cost-efficiency of NEST should not be inhibited. As these restrictions play out in practice, we are now finding that they add complexity to the NEST product rather than simplicity to the employer experience. They may force employers to make multiple-tier provision or sign up for a scheme that does not offer some workers best value.
	The transfer restriction also prevents NEST acting as an aggregator of pension pots. With automatic enrolment and job churn, there will be millions of small pots in the system which will be vulnerable to high charges and neglect if they are not steered into a safer harbour.
	The Government have acknowledged that the case for reform is clear. That reform must include a role for NEST, which must be fit for purpose in protecting the pension pots of ordinary people.
	The importance of NEST in driving up standards in the pension industry should be neither underestimated nor undermined. On the eve of auto-enrolment, we see emerging issues, such as providers selling short-service refunds as a propositional benefit to employers, with the consequential loss of up to two years' pension saving for the worker. There is also the establishment of multi-employer "master trust" schemes by providers with senior executives in trustee roles. How do they manage conflicts of interest? Will such trustees be able to sack underperforming fund managers if they sit within the same corporate entity?
	The Secretary of State has reserved powers to set charge caps and I hope that he will monitor closely the emerging evidence. Low charges are essential to the public credibility of automatic enrolment. I also hope that the Government take the opportunity of the Financial Services Bill to strengthen the requirement on regulated bodies to have a duty of care and to act responsibly in the interests of the consumer.
	There is increasing recognition of the importance of the alignment of interests between pension scheme governance and the member. NEST has this alignment at the core of its governance. Indeed, it was heartening to see Otto Thoresen at the Work and Pensions Select Committee arguing forcefully that the industry has really got it in terms of the need to make pensions work for the saver. It was equally heartening to hear him accept that some would be cynical of this claim, based on the industry's past behaviour in this area.
	I urge the Government unequivocally to confirm that they accept that a successful and thriving NEST has an essential role to play in driving up standards in the industry, in pension provision and in the interests of all those workers who will be auto-enrolled in saving for their pensions. I urge them to take such steps as are necessary to ensure that the role that NEST will perform in raising the standards in the market place is maintained, including removing restrictions to allow it to continue to do that.

Lord Myners: My Lords, I congratulate my noble friend Lord McFall of Alcluith on securing this opportunity for the House to revisit this important area of workplace occupational pension schemes. I declare an interest as a partner in an investment management firm and also as chairman of the Personal Accounts Delivery Authority, the predecessor to NEST.
	I am a member of a defined benefit pension scheme. My wife, my children and I draw security from the fact that we have an assured income which will track inflation. My father was a fisherman and then a small shopkeeper. He had no workplace pension; he worked at sea. My teenage children will not have a defined benefit pension scheme. This is a single generational phenomenon. Perhaps it cost too much; perhaps it was not valued sufficiently by those who were members of the schemes in the early stages of their lives; and perhaps we in Parliament put too much pressure on this beast and burdened it with all manner of additional requirements. We sought to de-risk it and we sought to provide additional protections. We have destroyed something which I think we all know was a rather good development and whatever succeeds it will not be as good. I fear that that is an irreversible decision.
	I congratulate my noble friend Lord McFall on his work on the Workplace Retirement Income Commission. That work focused in particular on some of the problems that arise with the successor arrangement, the defined contribution scheme. Contribution rates are simply too low to deliver the sort of benefits that people believe they will need and expect on retirement. There is a huge mismatch here which the Government constantly need to remind people about in order to encourage higher rates of contribution. Costs are also far too high. Costs are the one manageable element here. If the contribution is fixed and investment returns are outwith the control of the subscriber or the arranger of the plan, then costs is the one area where you can secure some improvement in the benefit that is acquired through contributions.
	My noble friend Lord McFall also highlighted the absence of competition in the annuity market. I referred to this in a report that I produced for the Treasury in 2001. This continues to be a very serious problem, particularly for people with only modest amounts to acquire annuities. I would like to suggest to the Minister that the Debt Management Office seriously considers offering annuities. It is another form of funding. It has different features from lending, but essentially a capital sum accrues to Government and a rate of return is paid to the subscriber of that capital. Therefore, it is not unlike a gilt-edged security. The Government have no concerns about operating in the fixed-income issuance market, so why should they not also be funding themselves through annuities? At least they could examine that as a force for change and better value from the private sector.
	I believe that NEST is being unreasonably hindered by its inability to act as an aggregator for small funds. That is something that the Government can do. Quite frankly, the private sector is not very interested in aggregation of small balances, so there is no obvious market for that. It is very much a seller's market in terms of pricing. As my noble friend Lady Drake has already reminded us, NEST has clearly played a very important role in improving the governance of pension schemes and improving the pricing of the pensions product. I pay great tribute here to Tim Jones, the chief executive of NEST, and his leadership. I hope that the Government will see NEST as something that they should champion and promote as a really effective force in this area, as it is important to so many people's lives.
	My final observation relates to occupational pension schemes as owners of companies. There has been a complete failure of institutional ownership, which lies at the heart of so many of the problems that we have in the private sector, including the hot potato of bonuses, with which I see the coalition Government struggling, and which reminds me of my own days in trying to resolve that issue. There has been a dilution of ownership and a dilution of a sense of responsibility on the part of investors. NEST is seeking to correct that, but the Minister, as a former investment banker, must be very well informed on these issues. In the past, organisations such as the National Association of Pension Funds with Mr David Paterson and the Association of British Insurers with Mr Peter Montagnon have done sterling work in governance and stewardship, but their effectiveness is being diminished by the fact that the pension schemes now represent a much smaller part of the ownership of UK companies. There is a major lacuna there in the economy.
	I was disappointed that the Secretary of State for Business's Statement recently on bonuses and pay did not say a great deal about making shareholders more effective in the performance of their duties as owners. I hope that the Kay review, which is due to publish an interim report in the next few days, will, as the noble Baroness, Lady Wilcox, assured us yesterday, address the issue of shareowners as responsible owners, including putting them at the fore in an active way in choosing boards of directors and sitting on nominations committees.

Lord McKenzie of Luton: My Lords, like all noble Lords who have spoken, I am grateful to my noble friend Lord McFall for initiating the debate and especially for his role in chairing the Workplace Retirement Income Commission. In six minutes it is impossible to do justice to its recommendations or the subject of our debate. This is an important piece of work which builds on the earlier deliberations of the Pensions Commission, although the noble Lord is right to highlight the change in circumstances in the few years since the commission reported.
	Clearly, the economic environment has changed for the worst-a bleak dawn, as my noble friend called it-where real incomes have fallen, confidence in long-term savings is low and real interest rates are negative. At the same time, people continue to live longer. There is both an imperative to save and an expectation that consumers will do their bit to sustain GDP. Low interest rates have pushed up the value of liabilities of DB schemes, making funding more difficult with greater risks on employers. The noble Lord, Lord Freeman, spoke on that. For the DC environment, low interest rates have meant lower annuity rates and slower build up of capital, with the risks falling on individual savers. So it is little wonder that we have seen the number of employees in private sector workplace schemes continuing to decline, with most private sector DB schemes closed to new members and many to existing members. That is before taking account of the threats from the EU, to which my noble friend Lord Hutton referred.
	The need to sustain and reinvigorate pensions is clear and the proposition to do this via occupational schemes is to be supported but we would be cautious about how employers should be engaging with employees on pensions and other savings, as this was certainly a bone of contention when auto-enrolment was planned with a distinction between giving advice and providing information. As the noble Lord's commission identified, although not a panacea, the recommendations of the Pensions Commission provided the foundation for reinvigorating occupational pensions. The components are well known, if complex, as the noble Lord, Lord Stoneham, said: a more generous state pension, flat-rating of S2P and the introduction of auto-enrolment. However, as we heard, things have moved on and we now have the coalition Government's proposals for a simpler, single-tier pension to consolidate the two components of the state pension and resources from pension credit. A higher state entitlement and the squeezing out of at least some means testing will clearly provide a platform to encourage further saving, but the proposition is not without its technical challenges. Perhaps the Minister will give us an update on the current plans. What work streams are under way to achieve this and what is the planned phasing of the introduction?
	The Government are to be congratulated on sticking with auto-enrolment, although we express our disappointment at the deferred start date for smaller companies and at the fact that it will not be until 2018 that the full employer rate of 3 per cent comes into effect. A number of noble Lords identified that the 8 per cent would have to increase over time. Because the Government are raising the earnings figure, now heading north of £8,000, yet more people will miss out.
	Like my noble friend Lady Drake, I urge the Minister to confirm that there will be no further delay in the implementation of auto-enrolment. It has the potential to change the occupational pension landscape, although, as my noble friend Lord Hutton said, it is too early to judge. This is linked to the success of NEST, which has the clear remit of delivering a national scheme with low charges. It has been constrained in its construct as part of the consensus that underpins the Pensions Commission's reforms. The removal in due course of the prohibition on transfers in, and of limits to annual contributions, argued for by my noble friends Lord Myners, Lord McFall and Lady Drake, will certainly be right.
	A range of other technical issues would help encourage pension savings. New rules facilitating the cashing in of small pension pots-which would give special help to women-tackling short-service refunds, and changing the rules on enhanced transfer values, will all help. We will support the Government as they tackle these measures. We were promised a bonfire of regulations-from the trivial to the huge-by the Pensions Minister. Perhaps the Minister will give us a clue to what is included in the "huge" category, and how this will help to invigorate pension saving.
	There is a lot in place or coming on stream that can make a difference, but we agree with my noble friend that there is much that the industry also must do to address fee levels and structures, and secure greater transparency and a more flexible annuity market. The Minister was given novel suggestion by my noble friend Lord Myners. All the measures are vital, particularly if DC schemes are to take the strain of a challenged DB regime. They are also vital if reputations are to be enhanced and confidence generated. The Workplace Retirement Income Commission stressed the need to develop products for DC schemes that mitigated the risk for individual members. This raises issues of collective DC, hybrid schemes and potentially many more, including the consolidation of a range of smaller schemes. Of course, it depends on whether the risk to be shared is the investment risk or the longevity risk. The development of such products and the complexity that they might bring sharpen the need to address the governance of DC schemes.
	In conclusion, I congratulate my noble friend Lord McFall again on the work of his commission and on stimulating the debate tonight. As the report says, pension policy needs to be considered in a long-term context of 40 to 50 years-certainly longer than the routine political cycle. An independent pension commission would help sustain the changes that are needed.

Lord Freud: My Lords, I join other noble Lords in paying tribute to the noble Lord, Lord McFall, and congratulating him on securing this important debate on reinvigorating occupational pensions. I am sure that noble Lords will join me in thanking him also for the skill and diligence that he showed as chairman of the Workplace Retirement Income Commission. The report was a fascinating read. It proposed recommendations on how industry, employers and the Government can strengthen workplace retirement saving. More importantly, I am relieved to see that in most of these areas the noble Lord and I are in much the same place.
	The pensions landscape, which is always fluid, will see a huge change again in 2012 with the introduction of auto-enrolment, which presents a once-in-a-lifetime opportunity to transform our savings culture. However, if we are looking to reinvigorate occupational pensions, we need to go further than this. We need to build public confidence that such pensions are value for money; increase employee engagement in retirement saving; and motivate employers to provide good pension vehicles. None of these goals is easy, and they have become a lot more difficult recently.
	In the past 25 years, life expectancy at 65 has increased by six years for men and five years for women. That is great news generally, but poses serious financial questions. Saving is in sad decline. In 2010, 13 million jobs had no pension provision-an increase of 2.5 million on 1997. The noble Lord, Lord Myners, uttered a lament for the occupational pension. We have seen falling annuity rates, increased longevity and a fall in the rate of return on equities. My personal belief is that some of us in this generation had a free ride because of the discovery of equity returns in the 1950s, 1960s and 1970s. I suspect that those returns were a one-off. We also saw the abolition of payable tax credits. As a result, UK pensions are no longer the gold standard that they were.
	Only one in three private sector workers is contributing to a workplace pension. Other noble Lords cited different figures but basically, if one wants a £15,000 pension, it will require £300,000 of capital outlay to fund. That brings home very starkly the challenge of getting people to invest in a pension.

Lord Myners: Not bankers!

Lord Freud: Not at the moment, but their remuneration is going down quite a bit.
	First, we must change attitudes towards pensions as a whole. Many people find pensions too complex, the incentives to save unclear and the expected retirement incomes unknown. For these reasons, the state pension needs to be reformed to provide a simpler, clearer foundation to support those saving for retirement. That is what the proposals in the Green Paper A State Pension for the 21st Century outlined: a simpler, single-tier pension set above the basic level of the means test as the primary option. I can update the noble Lord, Lord McKenzie of Luton, that, should we decide to proceed, we will set out further details as part of a White Paper in accordance with the usual process.
	Nevertheless, around 7 million people are not saving enough to deliver the pension income they are likely to want, or expect, in retirement. With automatic enrolment, we will start to see a behavioural change requiring all employers to enrol all eligible workers into a workplace pension scheme. I welcome the introduction of the National Employment Savings Trust as a simple, low-cost pension scheme designed to fill a gap in the market for employees on low to moderate earnings. We are already seeing NEST acting as a beacon of best practice to other providers and encouraging high standards of governance, responsible investment, effective communications and low charges. A number of noble Lords raised the issue of the shackles on NEST. We will keep that balance between competition and choice very much under review. In response to my noble friend Lord Freeman, I am pleased to report that last week the department began its communication campaign to alert individuals and employers to the reforms and to ensure that tailored information is received by those affected.
	On top of this, we must restore public faith in the concept of pension saving and, behind this, pension charges are key. Individuals who perceive their charges to be high are less inclined to save, so I welcome efforts by the National Association of Pension Funds to bring the pensions industry together to improve transparency of charges information for customers and employers. My department will offer its support to ensure that real improvements are made. It is also worth bearing in mind that since departmental research places the average annual management charge in default funds at between 0.4 per cent and 0.6 per cent, with none found higher than 0.9 per cent, the case for rushing into a charge cap without due consideration carries less weight. This is especially as new entrants into the market, such as Now pensions, are offering similarly low charges. Nevertheless, I can assure noble Lords that the Government will not hesitate to deploy a cap if individuals' pensions savings are at risk from excessive charges.
	As noble Lords have pointed out, there are a lot of small pension pots. There are more than 1 million small pension pots valued at less than £2,000, and automatic enrolment will clearly increase that number further. This is a serious hazard for individuals who want to build up their pension saving. Small pots are easy to lose track of and difficult to aggregate due to the cost and complexity of transferring pension schemes. In December 2011, the Government released the consultation paper Meeting Future Workplace Pension Challenges: Improving Transfers and Dealing with Small Pots, in which potential solutions are set out to address this issue. These include radical proposals such as an automatic transfer system in which pension pots could move with the individual from job to job or be consolidated in one or more aggregator schemes.
	Individuals also need to get best-value outcomes. The Government believe that individuals are likely to get the best deal by shopping around on the open market and exploring options from a range of providers before purchasing an annuity. We have been working with consumer groups, industry representatives and other government bodies to bolster the current right to the open-market option by developing a default open-market option. The Association of British Insurers is currently consulting on a new draft code of conduct which supports this aim.
	One area where standards must improve is on incentivised transfer, where members of perfectly sound defined benefit schemes are being offered cash incentives to transfer out of, or modify, their existing pension arrangements. It often results in members receiving less generous arrangements and thus lower retirement incomes. We are therefore working with the Pensions Regulator and the Financial Services Authority to develop an industry-wide code of practice which will cover all forms of incentivised transfers to ensure that these practices, when appropriate, are done fairly and transparently and are communicated to the member in a balanced and easily understandable manner.
	We need to make it easier for employers to provide good-quality pension provision for their workers. To help deliver this, we aim to make it easier for employers to restructure their pension arrangements without requiring the employer to pay the difference between its assets and the cost of buying out the scheme's pensions.
	The department's private pensions legislation will also be the focus of the red tape challenge. In response to the noble Lord, Lord McKenzie, I say that this is a cross-government initiative that seeks to revoke or simplify as much legislation as possible to ease the burdens on employers and business. We will use this opportunity to look objectively at pensions policy and consider whether the legislation as it stands reflects the department's priorities and is fit for purpose.
	The Pensions Regulator has set out its principles for what a good defined contribution scheme looks like, to establish standards for design and governance of defined contribution schemes and ensure that the pensions industry is best placed to support automatic enrolment.
	Looking further ahead, we need to build on the good work that the consensus of previous years has achieved. We should consider the role for government in determining scale and ask ourselves whether the high fragmentation of the UK pensions market offers good value, or whether a smaller number of larger schemes could offer lower charges and higher governance, to the advantage of members.
	As defined benefit continues to wane, we must take opportunities to study alternative risk-sharing arrangements, such as systems that I might term "defined ambition". Here the schemes aspire to a set level of benefits, rather than making a firm promise as our defined benefit schemes currently do.
	We must also consider how to encourage automatically enrolled individuals to save more where they can. The minimum 8 per cent contribution should be considered as it is described-a minimum. Options such as automatic escalation, in which pension contributions increase in line with member salaries, have merit and are worthy of close examination.
	I feel confident that 2012 represents a step change in how pensions in particular, and saving in general, are perceived by the public. I thank again the noble Lord, Lord McFall, and I hope noble Lords will join me in acknowledging that we have taken great strides in reinvigorating our pension system for the future.

Legal Aid, Sentencing and Punishment of Offenders Bill
	 — 
	Committee (7th Day) (Continued)

Amendment 171A
	 Moved by Lord Pannick
	171A: After Clause 58, insert the following new Clause-
	"Payments in respect of pro bono representation
	In section 194(10) of the Legal Services Act 2007, after ""civil court" means", add "the Supreme Court,"."

Lord Pannick: My Lords, Amendment 171A is surely the least controversial of all the many amendments to this Bill that are being debated. It proposes an amendment to Section 194 of the Legal Services Act 2007. Section 194 is a very useful provision. It recognises that members of the Bar and solicitors frequently act pro bono for clients in legal proceedings-they charge no fee. This is of course to their great credit and to the enormous benefit of the legal system as a whole, as well as of their fortunate clients.
	Some of our debates on this Bill have involved criticism of lawyers, some of it justified. We should take a moment to note that many lawyers act regularly in a wholly creditable manner by providing people with legal assistance when there is no funding, and without that pro bono assistance justice would simply not be done. One inevitable consequence of this Bill will be an increase in the demand for pro bono assistance from lawyers. When the pro bono lawyer succeeds for the claimant or the defendant, the unsuccessful other party cannot be ordered to pay the costs of the proceedings because the successful litigant has no costs, or limited costs, having received pro bono assistance. The losing side would gain an unfair benefit and indeed an unfair advantage in the litigation.
	Section 194 addresses this situation. It confers power on the court in civil cases to order a person, normally the unsuccessful party, to pay a sum in respect of the notional costs to a charity prescribed by the Lord Chancellor. The charity prescribed is the Access to Justice Foundation, which distributes the funds paid to it to voluntary organisations providing free legal support for individuals and communities.
	Section 194 of the Legal Services Act 2007 was promoted by the efforts of the noble and learned Lord, Lord Goldsmith, who I am delighted to see in his place. As Her Majesty's Attorney-General, he promoted this valuable provision. He is now chairman of the Access to Justice Foundation and I pay tribute to his considerable efforts in encouraging and supporting pro bono work done by lawyers.
	Section 194 has one small defect; it applies to the county courts, the High Court and the Court of Appeal but it does not apply to the Supreme Court. There is no sensible reason for not conferring this valuable power on the Supreme Court to make orders for payments to the prescribed charity in appropriate cases. Indeed, many cases in which lawyers act pro bono are the Supreme Court.
	Justices of the Supreme Court and the Supreme Court users group have expressed the view that Section 194 should apply to the Supreme Court as it does to other courts. I hope that the Minister will be able to tell the Committee tonight that this omission will now be rectified. I beg to move.

Lord Goldsmith: My Lords, I very much welcome this amendment and thank the noble Lord, Lord Pannick, for having taken the opportunity to move and to promote it. He has already explained my particular interest as the now chairman of the charity that receives money made under these orders, which I prefer to call pro bono cost orders rather than Section 194 orders, because that is what they are. They are cost orders in the same way as the court grants costs in any other case. It is just that they do not go to the lawyers; they go to this charity which then distributes them. I should also declare an interest as the non-executive president of the Bar Pro Bono Unit and patron of the National Pro Bono Centre, two organisations that might-one of them certainly has-receive some of the grant money.
	As the noble Lord has explained, the reason for these orders is the so-called "indemnity principle" in our costs regime. The indemnity principle means, first, that the court can order one party to pay the other party's costs but only if that party is liable for those costs. In pro bono cases, the body is not liable for costs. That has several consequences, one of which is that you do not have the normal result at the end of the case where often the successful party receives costs. That results in the oddity-this is where I first saw the anomaly-of the unsuccessful party, the undeserving party if your Lordships will, receiving the benefit of the pro bono services, perhaps of some advocate as distinguished and able as the noble Lord, Lord Pannick. That cannot be right.
	Secondly, there is no incentive to settle cases, which there often is in English cases, when there is a possible liability to costs at the end of the day. We have seen in a number of cases how that affects whether cases are settled; insurance companies and corporations will pay to a deserving claimant because they know that at the end of the day they will have to bear some costs if they do not.
	Thirdly, it has proved to be a very valuable source of additional money for voluntary organisations providing pro bono services. I am very grateful to the noble Lord, Lord Pannick, for paying tribute to the lawyers-solicitors, barristers and legal executives-who do this for free and without payment. When I established the Bar Pro Bono Unit, I asked whether members of the Bar would be prepared to commit to three days of free unpaid work a year, and straightaway I had an overwhelming response. People are prepared to do this, and that is a great credit to them.
	I have one thing to say to the Minister, which I always say when talking about this subject: this is not a substitute for a properly funded legal aid service but an adjunct to it, and a very valuable one. However generous a system might be, and we hope very much that the noble Lord will produce a more generous system at the end of the Bill, there will still be a need for this unit. However, as the noble Lord, Lord Pannick, has explained, there is a gap in that the House of Lords is not covered-

A noble Lord: The Supreme Court.

Lord Goldsmith: I am sorry, the Supreme Court-how outdated I am. To fill that gap would be very valuable. My understanding, like that of the noble Lord, is that the Supreme Court would welcome this. That is not surprising because the president of the Supreme Court is the noble and learned Lord, Lord Phillips of Worth Matravers, who, when he was Master of the Rolls in the Court of Appeal, was instrumental in passing the earlier Bill, but no doubt the Minister can confirm that. If not, his unsleeping department will be able check it instantly. I strongly support the amendment and hope that the Government will be able to accept it.

Lord Bach: My Lords, very briefly, we support the amendment. The expression "no brainer" has been used on a number of occasions. It is not an attractive expression, but it is surely one that applies to this amendment.

Lord McNally: My Lords, I am grateful to the noble Lord, Lord Bach, for his intervention, and to the two noble Lords who contributed to the debate. The role of the Ministry of Justice in pro bono work is undertaken in partnership with the Attorney-General to endorse, support and facilitate pro bono initiatives. The Attorney-General carries policy responsibility for pro bono work within the Government, presumably following the initiative of the noble and learned Lord, Lord Goldsmith. I certainly pay tribute to the work that he has done for the Access to Justice Foundation. I understand that the foundation runs an awareness-raising campaign, Unlock Funds for Justice, while on the other side the MoJ is providing funds for LawWorks over the next 18 months to fund two specific projects. LawWorks is the primary referral agency for legal help provided pro bono by solicitors. Although he is not in his place at the moment, I know that my noble friend Lord Phillips of Sudbury has played a big part in promoting the agency.
	Let me say first that the Government recognise the valuable contribution made by the legal profession in providing advice through pro bono work. The pro bono contribution made by the legal profession is made alongside publicly funded legal assistance. It is an adjunct to, not a substitute for, such assistance. I think that these speaking notes must have been left over from one of the briefs of the noble and learned Lord, Lord Goldsmith.

Lord Goldsmith: I am happy that the noble Lord read them too.

Lord McNally: My Lords, Section 194 of the Legal Services Act 2007 allows courts to make an order for costs against a losing party in pro bono represented cases, with the moneys recovered going to a prescribed charity, the Access to Justice Foundation. The Ministry of Justice works with the Attorney-General who, as I have said, has policy responsibility for this work. The legislation reduces the disadvantage to parties represented pro bono by levelling the financial risks of litigation for both sides. It has also provided a new source of funding for the strategic support and promotion of pro bono work.
	I am extremely grateful to the noble Lord, Lord Pannick, for highlighting this issue. The amendment, though, is one that the Lord Chancellor would like to consider further. Perhaps I may say that considering it further does not mean kicking it into the long grass or even making it a no-brainer, but it is one that needs proper consideration, and he has asked that, in that respect, he be given time to give it that consideration. I hope that the indications of support given in the Chamber tonight, the general direction of travel of this reply and my desire to make this a full house in terms of saying nice things about amendments that the noble Lord, Lord Pannick, has introduced today will give him confidence that what I have said is not a way of putting this matter into the long grass but of asking, as my briefing note does, that the Lord Chancellor be given time to give full consideration to this important matter. I see both the noble and learned Lord and the noble Lord coming for me.

Lord Goldsmith: One issue that we have looked at is whether it would be necessary to have any orders or consequential provisions made as a result of this change. I understand that, because of the existing Supreme Court rules, which can follow the rules in the other courts, it would not be a burden on officials. That might help the consideration to which the Minister has referred.

Lord McNally: The wonderful thing about this House is that you get free legal advice. I will certainly take that back to the Lord Chancellor with the weight of the advice of the noble and learned Lord, Lord Goldsmith, behind it. With that further steer, I would be grateful if the noble Lord, Lord Pannick, withdrew the amendment.

Lord Pannick: I am very grateful to the Minister. I will of course withdraw the amendment. I am very grateful to the noble and learned Lord, Lord Goldsmith, for his support, as I am to the noble Lord, Lord Bach, for his. It would indeed be churlish of me not to understand and accept the indications given by the Minister in respect of the amendment, which is plainly receiving far warmer consideration than some of the other amendments that we have discussed. I have to say that I cannot understand what further consideration is necessary in relation to an amendment of this sort in the light of the factors to which this debate has drawn attention, but on the understanding that this matter is receiving proper attention, in the hope that the Government will be able to bring forward an amendment in appropriate terms on Report and in thanking the Minister, I beg leave to withdraw the amendment.
	Amendment 171A withdrawn.
	Clause 59 : Costs in criminal cases
	Amendment 172 had been withdrawn from the Marshalled List.
	Clause 59 agreed.
	Schedules 7 and 8 agreed.
	Clause 60 agreed.
	Clause 61 : Duty to give reasons for and to explain effect of sentence
	Amendment 172A
	 Moved by Lord Ponsonby of Shulbrede
	172A: Clause 61, page 43, line 32, at end insert-
	"(1A) The court may order that the prosecution should inform the victim of the court's decision and the consequences thereof."

Lord Ponsonby of Shulbrede: My Lords, the amendment would give all victims the right to be told about sentences passed in the courts. Yesterday, the Government launched a consultation document called Getting it Right for Victims and Witnesses. In the opening sentence, the Lord Chancellor states:
	"Proper protection and support for victims of crime is fundamental to my vision of a reformed criminal justice system".
	In paragraphs 72 and 73, he makes it clear that it is his intention to opt in to a new EU directive on rights and support for victims of crime. He states also that he believes that victims are entitled to be treated with dignity and respect, and, crucially, that victims should receive information. That is the crux of the amendment. I have no doubt about the Government's good intentions in this matter.
	At present, once a case has been concluded, either in the courts or in an out-of-court settlement, there is no guarantee-and certainly no formal mechanism-to ensure that that the victim of a crime, if they so wish, is informed of the outcome of the case. In the Crown Court, there is a duty on the probation service to contact victims and their families after someone has been imprisoned for 12 months or more for a sexual or violent crime, but there is no obligation for less serious offences. I felt that it would make sense to put this new duty on the prosecuting agency on behalf of the victim rather than on the Courts Service itself. I did that because the prosecuting agency will already have the contact details on its files, and of course it already informs victims of the progress of their cases as they come to court.
	The current situation can be remedied by the introduction of a victim information order where a sentencing Bench can order the prosecuting agency to give victims information concerning the sentence itself, the reasons for that sentence, if it is a community order what they are likely to carry out within that order, the commencement and completion of that order and any compensation that may be paid. At present, the victim's views in court are part of something called the victim impact statement. Victim impact statements are a valuable source of information for any sentencing Bench but they are, in my experience, rare. I have been a magistrate for six years and I have read an impact statement only about four or five times, so they are not used very much. They should be used more and they could be used to request a victim information order. Through that mechanism, the victim could ask the court to make sure that they are told about the outcome of the sentence.
	Whether a victim impact order is made should ultimately be at the discretion of the court, and the court should of course have regard to any cost of making such an order. The only possible objection that I can see to my amendment is the likely cost of making such an order. I would be interested if the Minister could give any information about the likely cost of such an order given the Government's expressed intent to put victims at the heart of the criminal justice system.
	All noble Lords taking part in the Bill will know that there are many organisations representing victims. I have been contacted by a number of them, as I am sure have other noble Lords. They all essentially make the same point, which is that the lack of contact between victims and agencies such as the police, the courts, the prosecution services or the probation service is very often perceived as a lack of action by those agencies. In many cases that is the wrong perception but, even if it is wrong, it clearly undermines the criminal justice system itself. That is no doubt why we hear this admirable ambition of the Government to put victims at the heart of the criminal justice system. My amendment goes further towards achieving the Government's aims and I beg to move.

Baroness Quin: Amendment 172B is in my name and that of the noble Lords, Lord Ramsbotham and Lord Wigley, and relates to Clause 61. I tabled two more amendments in the same group with the support of the noble Lord, Lord Wigley, Amendments 178ZA and 178ZB, which are similar to the first amendment and relate to Clauses 86 and 95. Even though my noble friend spoke on a slightly different aspect, I associate myself with his comments and with his concern for victims.
	Although I do not have a financial interest to declare, I was promoted to table this amendment by some work that I did some years ago with the Prison Reform Trust. We were part of a project called No One Knows, which looked at the experience of people with learning difficulties and learning disabilities in the criminal justice system. I chaired the project's advisory group, which brought together people with knowledge of issues from various spheres, including members from Mencap, healthcare professionals, people involved in social care and learning and skills, and various practitioners and academics. We were also helped in that work by the Working for Justice Group, a group of people who have direct experience of the system and whose first-hand knowledge was invaluable to us.
	The project produced what I hope was an authoritative report, Prisoners' Voices, which was well received by Ministers at the time, who undertook to look at our recommendations. I am pleased to say that both the previous Government and this one have taken some action on those recommendations; in particular, we are about to have more of a proper screening programme in the prison system to identify people with learning difficulties and disabilities. There have been improvements in the training of prison officers in this respect, and the very welcome recent development of some offender behaviour programmes recognising these particular issues. In addition, the Easyread system is being adopted in various parts of the criminal justice system, to increasingly good effect.
	However, I believe strongly that further improvements and commitments in this area are necessary, certainly as far as the courts are concerned, which explains the tabling of these amendments. I am very grateful to the noble Lords, Lord Ramsbotham and Lord Wigley, for their support, particularly on an issue such as this, where I recognise their keen interest and experience. I am also grateful to the noble Lord, Lord Wigley, for signing the other two amendments that I mentioned. It is perhaps particularly appropriate because I know that the Prison Reform Trust's report, Prisoners' Voices, has been taken very seriously in Wales. The previous Health Minister in Wales, Edwina Hart, was part of the launch in Wales of the report and the measures that we wanted to see adopted.
	I am also aware that Mencap and the noble Lord, Lord Rix, had very similar concerns about this part of the Bill to the ones that are reflected in these amendments. I say to the Government that these are, at this stage, obviously probing amendments, but with the plea that the Government look at our concerns with a view to try to change the wording of the Bill to reflect their importance.
	We know that a very large number of offenders have learning difficulties and learning disabilities. Obviously it all depends on the definition that you use. If you use a very wide definition of learning difficulty, you could make the case that the majority of people in the prison system are affected. The work and research that has been done suggests that a core of, say, 20 to 30 per cent of offenders and people in the criminal justice system are affected by learning difficulties and learning disabilities. If you have a prison population of 80,000, that means anything between 16,000 and 24,000 people; so we are talking about a considerable number of people that we need to be aware of.
	The figures for young people are even more serious. Research by Professor Karen Bryan and others seems to indicate that more than half of children who offend have speech and language communications difficulties. About half this group have very poor skills indeed. It is important for all parts of the criminal justice system to be aware of this, but it is particularly important in the initial stages, when people charged come into contact with the system. The Bill refers to ordinary language, which is welcome as far as it goes, but I find it somewhat vague. What may seem ordinary to a well qualified and educated lawyer may be way out of the ordinary to a young offender with learning difficulties or learning disabilities. As the Prison Reform Trust puts it:
	"The term 'ordinary language' is imprecise; what is 'ordinary' to a magistrate or a judge may not be 'ordinary' to the individual offender".
	In the course of our work, we came across some very interesting examples. For example, one young person was asked in court whether he was remorseful about the crime that he had committed. Since he did not know what the word "remorseful" meant and was rather distrustful of it, he said no. Even such words as "victim" or "breach" are sometimes sufficient to confuse or mislead someone in that position. Indeed, Mencap makes the point that almost a quarter of prisoners under 18 have a learning disability or difficulty, with a 78 per cent reoffence rate among those at risk. That reoffence rate is an important part of our concern that we have the ability to make sure that we communicate properly with such people, as that can help to avoid some of the later difficulties that we are all keen to avoid.
	I am aware, in conclusion, that an amendment trying to do what I seek to do here was tabled in another place by my honourable friend Helen Goodman, and I accept what the Minister Crispin Blunt said in reply on that occasion-that that particular amendment was defective and could have resulted in omitting some valuable elements from the Bill. However, my amendment, in trying simply to insert some wording, seeks to rectify that, and for that reason I hope that the three amendments that I have tabled can find favour and that we can find a better wording than the imprecise and unsatisfactory current wording of the Bill. I do not believe that there is a difference of substance or principle here; it is really simply a concern that we get the wording right so that the desired result is achieved.

Lord Ramsbotham: I rise to speak in support of Amendment 172B, to speak to Amendment 174, and to speak to Amendments 173, 177, 181, 182, 183, 184 and 185 both on behalf and in support of my noble friend Lord Rix, who would have declared his interest as president of the Royal Mencap Society had he been able to be in the House.
	I speak first to Amendment 172B. I must declare an interest as chairman of the All-Party Group on Speech and Language Difficulties. As the noble Baroness, Lady Quin, has already pointed out, more than half the children who offend have some form of learning difficulty. The inability to communicate is the scourge of the 21st century, about which I have spoken many times in this House, most recently in the context of the Health and Social Care Bill. Regrettably, except in Northern Ireland, there is currently no routine screening to identify children with communication difficulties or learning disabilities. Until and unless there is, and early remedial action is taken, these children will be unable to understand or participate in the judicial process without effective support, which in turn must be related to their abilities or lack of them. This is yet another example of a need, identified in this Bill, being inhibited by lack of provision in another Bill. I hope that the Minister will speak to the Department of Health before Report so that we can consider how best to proceed with this amendment.
	Amendments 173, 177 and 181 to 185, to which I speak on behalf of my noble friend, who much regrets that he cannot be present, are all based on the principle of safeguarding vulnerable people in the criminal justice system. They also reflect demands that the system should be sufficiently flexible to achieve the delicate balancing act of protecting offenders with additional needs while prosecuting them. Of course, perpetrators must face the consequences of their actions, but they should not be denied the support that they may require in order to understand and participate in the judicial process.
	A wide spectrum of individuals is affected by these amendments: those with speech or language difficulties; those for whom English is not their first language; and those with a learning disability. According to the Prison Reform Trust report published in 2007, to which the noble Baroness, Lady Quin, referred, between 20 per cent and 30 per cent of offenders have learning difficulties or disabilities that interfere with their ability to cope within the criminal justice system. On top of this, there is ample evidence of current deficiencies within the system over meeting these additional needs, which vary from poor flagging of individual needs to inappropriate diversion schemes and insufficient adjustments being made in the interests of fairness. That flies in the face of the principles of justice, from which they are at risk of being disproportionately disadvantaged by the system.
	Amendments 173, 177 and 183 to 185 are about the availability of accessible information at all stages of the judicial process. I appreciate that the Bill provides for the use of ordinary language when, for example, giving reasons and explaining outcomes. However, as my noble friends Lord Rix and Lord Wigley and I mentioned to the Minister when he kindly agreed to meet us, this does not go far enough. Ordinary language, however simplified, may not be sufficient to explain complex concepts or terminologies which could elude the comprehension of some individuals. For example, people with a learning disability may require easy-read formats, which include pictorial aids. What I am therefore seeking in the Bill is an acceptance that, to ensure that all aspects of the judicial process are fully understood by those with particular needs, different forms of communication above and beyond ordinary language must be employed, determined by what is most appropriate for the recipient.
	I have a very real concern over one particular proposal in the Bill; namely, that conditional cautions could be issued without the involvement of the Crown Prosecution Service. If authorised persons such as police officers are to be allowed to offer such cautions, it is of paramount importance that they do so in a way that ensures that individuals with additional needs are aware of the conditions attached. Without this safeguard, miscomprehension could result in someone being unaware of what they are admitting to or what conditions they risk breaking, resulting in their suffering greater sanctions as a result. What is more, options for disposal, such as offender management courses, must be available in appropriate forms before they are attached as conditions to avoid people being set up to breach. That is one reason why the amendment calls for the use of appropriate adults, who are an invaluable resource for all vulnerable groups because they provide impartial advice in what can be very stressful situations. In this connection, I hope that there will be greater obligation on authorities to make more use of them.
	Amendments 181 and 182 relate to employment provision in prisons. Here I must declare another interest as vice-president of the Centre for Mental Health which, for the past five years, has been studying the employment of those with mental health problems, including learning disabilities. I fully endorse the positive role that employment can play in prisons, particularly with regard to the teaching of employment skills which can be utilised outside custody. However, government figures suggest that fewer than 7 per cent of people with a learning disability known to social services are in any form of paid employment and, regrettably, the significant barriers to work that they face already, including employer prejudice, are likely to be increased as a result of the stigma attached to a conviction.
	Inevitably, people with learning difficulties have high support needs, and I echo Mencap's concerns that without that support many of them will be unable to participate in the ethos of working prisons that the Government seek to implement. That could leave them isolated and unable to integrate into prison life on top of their vulnerability to targeted harassment and abuse. Furthermore, if financial penalties are now to be associated with a failure to carry out work-related activities, people with a learning disability stand to be disproportionately affected unless effective and adequate employment support mechanisms are put in place.
	This group of amendments is designed to provide vital safeguards for certain vulnerable groups as they make their way through the criminal justice system. Just because their needs present an additional challenge does not mean that they should be overlooked. On the contrary, ignoring them is likely to lead to future interventions being needed following more serious offences, which in turn will be more expensive to provide.
	I turn to Amendment 174, which is also linked to amendments that I have tabled later in the Bill. It is designed to emphasise the point that although imprisonment is a punishment awarded by the courts and prisons are places in which that punishment is served, if the public are to be protected by the prevention of reoffending, rehabilitation must be a key component of all prison sentences.

Lord Wigley: My Lords, in earlier debates on the Bill we discussed the need to ensure equality of arms before the law and the wider principles surrounding access to justice. I support Amendment 172B, to which the noble Baroness, Lady Quin, has spoken so effectively, and the linked amendments, all of which promote a particular aspect of access to justice-that is, the need to ensure that people of all abilities are able to understand the criminal justice system, be they the victims or the perpetrators of crime. I warmly support the points made by the noble Lord, Lord Ramsbotham, and we are all indebted to him for bringing his wealth of experience to our debates on these matters.
	Amendments 172B and 173 would amend Clause 61, which places a duty on courts to give reasons for, and explain the effect of, sentences that they hand down to perpetrators. The clause outlines a duty on the court to explain in "ordinary language" the court's rationale for arriving at a particular sentence. "Ordinary" is a relative term. The amendments add that the language should be,
	"appropriate to the intellectual ability and understanding of the individual offender"-
	that is, to ensure that the court recognises the need to adapt its means of explanation in cases where an offender has a disability or learning difficulties. I should declare my interest as a patron of Mencap Cymru.
	Our justice system should be both accessible and comprehensible, and steps should be taken to ensure that victims and perpetrators of crimes understand the implications and the gravity of the crime committed. If this is not done, there is every risk that the perpetrators in question may not be amenable to successful rehabilitation and will regress into committing similar crimes in future.
	Amendment 178ZA would amend Clause 86 of the Bill, which makes provision for a court to impose conditions on a child who it has remanded to local authority accommodation. The clause also states that the court may impose certain requirements on the child if they are being granted bail, including, in some cases, electronic monitoring. Under subsection (7), it is stated that when a court imposes conditions on a child or varies those conditions, the court must explain the rationale behind this in "ordinary language". There again, that troublesome phrase crops up. Amendment 178ZA would clarify that the language needs to be appropriate to the intellectual ability and understanding of the individual child. The necessity of using appropriate language is surely overwhelming when considering situations that hinge on the well-being and the education of impressionable children.
	Amendments 181 and 182 centre on a related, though slightly different, issue. They would amend Clause 118, which itself makes amendments to the Prison Act 1952 in respect of the employment and payment of people in prison and those detained in remand centres, secure training centres and young offender institutions. Subsection (2) provides that the Secretary of State may continue to make rules about the employment of persons who are detained in secure training centres or young offender institutions. Subsection (4) inserts a new section into the 1952 Act which similarly confers new powers on the Secretary of State to make rules about the employment of prisoners.
	Perhaps not enough attention is always focused on the importance of employment in prison. Society is still divided on the purpose that prisons fulfil. However, if we are to take steps to ensure that prison is anything other than an expensive means of giving society a break from criminals, we must invest time and effort in ensuring that those incarcerated use that time constructively to learn about the benefits of a life without crime and to understand the implications of the crimes they have committed. This avenue should be available to all prisoners. That is why Amendments 181 and 182 seek to add further paragraphs to this clause to ensure that the Secretary of State must also make rules about,
	"(c) the availability of support to carry out employment; and
	(d) the availability of support to understand the terms of employment in prison".
	These amendments, if accepted, would go towards certifying that all those incarcerated in our criminal justice system have the same opportunity for rehabilitation regardless of ability.
	Finally, Amendments 184 and 185 seek to amend Clause 124, which sets out the anatomy of youth cautions. Clause 124 repeals Sections 65 and 66 of the Crime and Disorder Act 1998, hence abolishing the final warning scheme. It instead inserts new Section 66ZA, which establishes a new out-of-court disposal for young offenders-the youth caution. New Section 66ZA sets out that a constable may give a child or young person a youth caution if the youth has admitted to committing an offence and if the constable decides that the youth should not be prosecuted. The section outlines that if a constable gives a youth caution, they must ensure that the implications of the youth caution, and the reasons for issuing it, are explained in-once again-"ordinary language" to the person or, if they are 17 or younger, the appropriate adult accompanying them.
	Amendment 184 would leave out "ordinary language" and insert instead:
	"in an accessible way that may include, but will not be limited to, simple use of language".
	The amendment therefore has the effect of ensuring that most disabilities are catered for. Amendment 185 also ensures that the constable would have a duty to explain the reasons for issuing the caution, as well as the implications of the caution, to an appropriate adult not only if the child is younger than 17 but if the child,
	"requires support to communicate or understand the process".
	This would make sure that children who have a disability or impairment which would hinder their understanding of the process would not be left disfranchised by the criminal justice system simply because of their age.
	Taken together, these amendments succeed in widening access to justice and expanding the clarity of our justice system for people with disabilities. It is only common sense that they should be taken on board. In no way do they undermine the objectives of the Government in the Bill. I urge the Minister to accept them or, at the very least, to undertake to consider them between now and Report to see how these objectives can best be achieved.

Lord Dholakia: My Lords, my Amendment 172C is grouped with Amendment 172A, among others. I agree very much with almost all of what noble Lords have said on these amendments. I particularly thank the noble Lord, Lord Ponsonby of Shulbrede, for rightly seeking to put the victim very much at the centre of the process; victims must be informed about what has happened.
	The purpose of my amendment is not to miss out a very important element in the sentencing process. It would retain the duty on courts passing custodial sentences to give reasons explaining why they consider it necessary to pass a sentence of imprisonment. It would not take away any powers from the courts to prescribe a custodial sentence. The intention is to provide an explanation which informs people about the purpose of passing a custodial sentence.
	My amendment goes further than Amendment 176ZB, tabled by my noble friends Lady Linklater and Lord Thomas of Gresford. Their amendment, which I also support, is limited to sentences of less than six months, whereas mine would go further and apply to sentences of six months or more. Let me explain why.
	In general, I welcome Clause 61. It replaces the current complicated requirements on courts to explain the implications of and reasons for their sentences with a simple requirement that they should explain the sentence in ordinary language-a point made by many noble Lords. This is a welcome simplification of the court's duties at the sentencing stage.
	However, I have one concern about this change-namely that it abolishes the requirement for courts passing prison sentences to explain why they consider that the offence requires a custodial sentence. Depriving offenders of their liberty by passing a custodial sentence is a uniquely serious decision that is in a different category from imposing even the most intensive community sentence. A prison sentence often means that an offender loses his or her accommodation. Many offenders sentenced to custody lose their jobs. Others have their education disrupted. All too often, custodial sentences contribute to the break-up of families. Community sentences, even intensive community sentences with significant restrictions on the offender's liberty, do not produce those results. I submit that a court should have to explain its reasons for concluding that, despite those negative consequences, it nevertheless believes that only a custodial sentence can be justified.
	Although I support my noble friends' Amendment 176ZB, I consider that this duty to give reasons should also apply to sentences of six months or longer. There are often occasions on which courts decide that it is more productive to impose a community sentence with, say, a drug rehabilitation requirement or a sex offender treatment programme than to pass a one-year or even a two-year custodial sentence. A one-year or two-year sentence means that the offender actually spends six months or a year in custody before release. He or she then returns to the community, usually without having been through a treatment programme that could help to reduce reoffending. In these cases, too, courts should have to exercise the discipline of giving reasons for their conclusion that only a custodial sentence can be justified. The discipline of having to give reasons for passing a custodial sentence helps to concentrate sentencers' minds on the gravity of their decision. This is designed to help ensure that custodial sentences are imposed only when there is no reasonable alternative.
	I therefore hope that the Government will think again and decide to retain this important requirement. My amendment and that of the noble Lord, Lord Ponsonby, bring transparency to the sentencing process, and I am sure that the Minister will, on reflection, consider this to be a sound case.

Lord Goldsmith: My Lords, this group of amendments touches on a number of important issues. I have great sympathy with what my noble friend Lady Quin and the noble Lords, Lord Ramsbotham and Lord Wigley, said on those issues. I shall not touch on those matters as the noble Lords have greater experience. I was slightly alarmed to hear what the noble Lord, Lord Ramsbotham, said about the intention to take away prosecutors from conditional cautions. We will consider that issue later in the Bill and I look forward to hearing just what the proposal is and the justification for it.
	I want to spend a moment or two on the amendment moved by the noble Lord, Lord Ponsonby of Shulbrede, which does a great service to the Committee by focusing attention on the need for the victim to know in appropriate ways what the outcome of the case has been. The victim, although not like a plaintiff in a civil action, is after all still the person to whom the offence happened, and it is right that the victim should therefore be told what happened, and told appropriately. I also very much agree with the noble Lord that generally that duty should be on the prosecution.
	It is important that the public and victims see that prosecutors are there to some extent as an interface between them and the court and justice system, and that prosecutors focus on the needs of victims-as well, obviously, as on the professional requirements of their job to bring and prosecute cases fairly.
	My question about the amendment, while fully supporting the spirit and intent behind it, is whether it is necessary for that to be dealt with by way of imposition of a duty and a new form of order. I say that because I would have hoped that, by now, prosecutors would know that they have that responsibility. I will be interested to hear in due course from the Minister and the noble Lord, Lord Ponsonby, who has promoted the amendment, whether it is believed that prosecutors are not doing that.
	There are one or two reasons why a duty may give rise to difficulties. The prosecution may not always be a professional prosecutor. Sometimes the prosecutor may be a private prosecutor. It may be inappropriate for a number of reasons to impose the same duty on a private prosecutor-a neighbour in a neighbour dispute, for example-as on a professional prosecutor. There may also be victims who need particular care in explaining to them the outcome of the case, and that may need professional skills.
	I am also concerned that, by imposing a particular duty of information on prosecutors, we do not take away the need for them to provide other information. Reference has already been made in this short debate to the need for prosecutors to keep victims informed of the progress of cases. In my day, we attempted to deal with that and provide flexibility by creating a victim's charter, which was intended for prosecutors to sign up to under the guidance-or, indeed, direction-of the Attorney-General, which would cover progress of the case and, as the noble Lord, Lord Ponsonby, said, its outcome. That may be a better system to achieve what he wants.
	As I said, I look forward to hearing what the Minister has to say. I entirely agree with the fundamental point that the victim should be informed of the outcome appropriately and that the prosecution should have a duty to do so.

Lord Bach: My Lords, this is the first debate of many, I suspect, on Part 3. Part 3 is entitled "Sentencing and Punishment of Offenders", and Chapter 1 is entitled "Sentencing". Luckily, there does not seem to be a part entitled "Punishment of Offenders", but we know that that was a late introduction to the Title of the Bill many months ago.
	I shall be very brief indeed. The Committee has been lucky enough to hear speeches from many noble Lords, all of whom have great experience of the criminal justice system in the best possible way-by being either magistrates or experts for many years in the work of the system. We are very lucky in the Committee and the House to have them to give us the benefit of their wisdom on it.
	Part 3 is very important. The Opposition certainly do not intend to be difficult in any way about this part. If we think the reforms are wrong, we will say so; if we think they are right, we will happily agree with the Government. We know from our experience of government that this is not an easy area to deal with. Sometimes Governments have to be tough in the face of what seem overwhelming arguments from Parliament; and sometimes Governments can be too tough and not take note of sensible recommendations made.
	From listening to what has been said on the various amendments tonight, some sensible suggestions have been made-none of them revolutionary or radical-to change the system. Clause 61 is liked; the noble Lord, Lord Dholakia, said that he approved of it, and I suspect that that is true of others around the Committee.
	The only point that I will make concerns victims. I think that the Statement made by the right honourable gentleman the Lord Chancellor in another place on Monday regarding the Criminal Injuries Compensation Authority, as it is now known, and the change of policy on some of the tariffs may have been quite disappointing for some victims and victim groups. I am sure that does not mean that this Government are in any way less committed to looking after victims' interests than were the Government of whom I was a member. I know that all those who talk about fair play for offenders-making sure that the system includes rehabilitation for them and a chance to do better-have exactly the same feeling about victims as the rest of us.
	I do not want to go into any of these amendments tonight, and I am quite sure that the Committee is with me on that. However, I do want to hear the Minister's response to the points that have been made. I hope that he is sympathetic to these amendments. I am sure that none of them will be pushed tonight but some important points have been made and we look forward to his reply.

Lord McNally: My Lords, I thank the noble Lord, Lord Bach, for the constructive way in which he has responded. I hope that Part 3 of the Bill can draw on the experience and expertise around this House. I see a number of old friends and familiar faces in this area of policy. I am also grateful to a number of noble Lords for having the chance to discuss these issues in advance of them reaching the Committee. That has been of great help in understanding where they are coming from with their amendments.
	Before I turn to the amendments, it may assist the Committee if I explain what Clause 61 intends to do. It replaces the current Section 174 of the Criminal Justice Act 2003 with a revised section that simplifies the existing duty to give reasons for, and explain, the sentence.
	In response to the consultation paper Breaking the Cycle, the judiciary, among others, said that the current statutory requirements are overly prescriptive and have become increasingly complex as additional requirements have been added. As a result, the current legislation is difficult to find and difficult to understand, and in the day-to-day operation of the court can simply become impractical. The Government wanted to address these problems, which is why we created in Clause 61 a replacement Section 174. It has been simplified and shortened and consolidates the various changes made to the section since 2003. In doing so, however, we have retained the important statutory requirement placed on courts to explain the effectiveness of the sentence and, crucially, the duty to state in open court and in ordinary language, in general terms, the court's reasons for deciding on the sentence. This means that not only the offender but victims, witnesses and the public can see that justice is being done.
	A balancing act is required here. On the one hand, we need to ensure that courts make very clear why a sentence is being imposed and what the effect of the sentence is. On the other hand, we need to avoid burdening courts with unnecessary and prescriptive provisions that are very often irrelevant in particular cases and which, rather than clarifying the position, simply confuse victims, witnesses and offenders.
	I turn to the details of the amendments and begin with Amendment 172A in the name of the noble Lord, Lord Ponsonby. I start by saying that I take the point made by the noble and learned Lord, Lord Goldsmith, about greater transparency. He will remember that when he was Attorney-General there was an obligation on victim care units jointly run by the CPS and the police to explain sentences, regardless of whether the case was brought by the CPS or was a private prosecution. The Ministry of Justice has also embarked on a transparency programme, publishing data about the outcomes of court cases. We hope that being able to see the progress and outcome of cases will give people confidence.
	Our approach to the amendment in the name of the noble Lord, Lord Ponsonby, is that we do not believe that it is necessary. First, we would not want legislation to suggest that a court could simply avoid its own obligation to give reasons for the sentence in open court by delegating this to the prosecution. Secondly, and more importantly, there is already an obligation on witness care units, which are run jointly by the police and the CPS, to inform and explain sentences to victims under the victims' code. The victims' code is very clear. Paragraph 6.8 says,
	"The joint police/CPS Witness Care Units must explain to victims the meaning and effect of the sentence given to the offender in their case, and respond to any questions the victim may have".
	I turn now to Amendment 172B in the name of the noble Baroness, Lady Quin, and Amendment 173 from the noble Lord, Lord Rix. I was grateful for the opportunity to meet the noble Lord in advance of this Committee and to benefit from his expertise and that of Mencap in issues affecting people with learning difficulties. I understand the thinking behind these amendments. My concern, however, is to make this duty on courts as simple and as practical as possible for the million-plus sentencing decisions made each year. I want to avoid the problem of overly prescribing in legislation how courts should go about explaining the reasons for, and the effect of, a sentence. With that in mind, I do not think it is necessary to complicate the wording of the duties in the new Section 174.
	The use of the phrase "ordinary language" is lifted directly from the Criminal Justice Act 2003 and is, by definition, meant to include language that most people can understand. However, I understand the point made by the noble Baroness, Lady Quin, about people's comprehension of even ordinary language. I heard a programme the other day about training apprentices in Stockport, my old stamping ground, and the difficulties of 16 and 17 year-olds in training who did not understand what "catalyst" meant. There are some worrying things in that respect and I am sure that that happens even more in the courts.
	The current duty requires that the explanation, as a minimum, should be in ordinary language. It does not therefore stop the court going further where required. So I hope the noble Lord will accept that we should retain that minimum standard, which should apply in the vast majority of cases, while allowing discretion to go further if required. I very much appreciate the advice that Mencap provided on the various techniques that could be used to explain a sentence to people with learning difficulties. That will be used in the training of judges and magistrates, and I intend to pass that on to the bodies responsible for that training.
	Amendment 172C, from my noble friend Lord Dholakia, would reinsert into the revised Section 174 a requirement on a sentencer, when imposing a custodial sentence, to refer back to Section 152 of the Criminal Justice Act 2003. That is one of the requirements that the simplified version of Section 174 has removed because we believe that it is unnecessary and complicates the duty on sentencers. The revised duty to give reasons simplifies the provision, but it does not mean that a sentencer does not have to say why they have imposed a custodial sentence. That duty remains.
	On Amendment 174, in the name of the noble Lord, Lord Ramsbotham, I understand where the noble Lord comes from, particularly about rehabilitation. I share his enthusiasm for rehabilitation. Unless we successfully build rehabilitation into our criminal justice system, we condemn ourselves to an ever-upward lift in prison population, a prison population that will be warehoused and that will leave us with the problems of reoffending and no improvement in the situation. Certainly we must build rehabilitation into the policy. However, for many people punishment, public protection or reparation will be important, so we do not think it helpful to pick out one purpose of sentencing for special attention when explaining a sentence. Some sentences will not have a particularly strong rehabilitative element: for example, a fine for a minor traffic offence. Therefore, while I recognise the intention behind the amendment, it is not necessary.
	Amendment 177 would place a duty on a public body imposing requirements in community orders to take all reasonable steps to explain the terms of the requirements to the offender. I understand the intent of the amendment, but again I question whether it is necessary. Any offender sentenced to a community order will have the effect of the sentence explained by the court. The explanation will include what can happen if they do not comply with the order. The legal representative of the offender is also likely to explain the implications of the sentence. Finally, the probation service will always explain at the outset what the sentence is and what is required by the offender.
	I went recently to observe Isleworth Crown Court for a day. One case that came up was that of a young man with learning difficulties. I was massively impressed by the care taken by the judge to make sure that the young man fully understood what was happening to him, why it was happening and what would happen next. Many concerns expressed today have much more to do with judicial training and the training of staff, and building awareness of this into the system. The comprehension issue and making sure that people with learning difficulties are not left behind are very much part of what we are trying to do. Where we disagree with part of the House is on whether all this should be written into a Bill.
	I will mention briefly the other amendments that relate to later clauses on youth remand, prison work and conditional cautions. Again, we believe that they are unnecessary. Youth court judges, prison officers, probation staff and the police are well versed and trained to deal with a range of offenders. Amendments 178ZA and 178ZB concern youth remand. Every court that deals with a child or young person who is brought before it has a duty not only to have regard to the principal aim of the youth justice system, which is to prevent offending or reoffending by a person under 18, but to have regard to the welfare of the child. These duties must include a duty for the court to explain its decisions not just in ordinary language but in language that can be understood by the young person.
	Amendments 183, 184 and 185 cover cautions. It is as crucial to the integrity and fairness of out-of-court justice as it is to sentencing that individuals fully understand the meaning and implications of receiving a caution. Operational guidelines rather than legislation are the right place for such safeguards. A constable cautioning an offender who is accompanied by an appropriate adult because they need support to understand or communicate will also explain the effect to the appropriate adult. On that basis, again, we do not consider the amendment necessary.
	Finally, Amendments 181 and 182 concern prison work. Existing guidelines already contain sufficient safeguards to ensure that the needs of prisoners with disabilities are met. The Prison Service instruction Ensuring Equality makes it clear that all managers and staff must ensure that efforts are made to identify whether a prisoner has a mental or physical problem of any form. Governors must consider what prisoners within a range of disabilities might reasonably need, and must ensure that reasonable adjustments are made for disabled prisoners.
	I cannot accept any of these amendments. However, I can say that the debate was useful. As I said, I can make no promises, but I will look at the points raised in this debate to see whether there are any parts of the concerns on which we can give satisfaction, either by the statements I make from this Box, in guidance and training to the various authorities within the criminal justice system or even by amendment. On those terms, I hope the noble Lord will agree to withdraw his amendment.

Lord Ponsonby of Shulbrede: My Lords, I thank noble Lords who supported my amendment, including my noble friend Lady Quin, my noble and learned friend Lord Goldsmith and the noble Lord, Lord Dholakia.
	Regarding what my noble and learned friend Lord Goldsmith said, my understanding is that there are currently ad hoc arrangements post conviction about whether victims should be supported, and there are various organisations that do that. There is also the witness service and the code of practice for victims of crime. However, they are ad hoc and not a comprehensive system.
	As usual, the noble Lord, Lord McNally, was more accommodating when he was extemporising than when he was reading from his notes. What he read out regarding my amendment was that I was seeking to avoid the obligation on the courts to explain sentences. That is not remotely the case, as I am sure he realises. Nevertheless, I take his extempore comments as a positive sign that he is willing to look at all these amendments to see what can be done. In that spirit, I beg leave to withdraw the amendment.
	Amendment 172A withdrawn.
	Amendments 172B to 174 not moved.
	House resumed.

House adjourned at 10.13 pm.